Commerzbank, China bank in Dresdner talks-sources

FRANKFURT (Reuters) - Talks over the sale of Germany's Dresdner Bank are in full swing, sources familiar with the matter told Reuters on Tuesday, with both China Development Bank [CHDB.UL] and Commerzbank (CBKG.DE) involved.

Reuters reported on Monday that Commerzbank is racing to reach an agreement on a deal to buy Dresdner Bank by the end of this week as it prepares to ask its supervisory board to sign off on the plans, according to sources close to the matter. [nLP543817]

A source close to Allianz (ALVG.DE), which owns Dresdner, told Reuters on Tuesday the talks with both banks are in full swing while another source close to the negotiations said the Chinese bank stands a good chance.

All companies declined to comment.

Commerzbank has been seen as the favourite buyer and if it succeeds, the deal would fuse Germany's second- and third-biggest banks, creating a group to rival flagship Deutsche Bank (DBKGn.DE).

It would also let Allianz escape its unhappy marriage with Dresdner -- a deal struck seven years ago that brought together investment bankers and insurance salesmen but which angered investors as losses mounted.

The sources said there is the possibility that Dresdner Bank will be sold to Commerzbank in two phases and that Allianz would keep a minority position.

It would also be possible for Allianz to take a stake of around 30 percent in the new bank in the mid-term, the sources added.

German daily Frankfurter Allgemeine Zeitung reported that the China Development Bank is offering a significantly higher price for Dresdner and is ready to pay in cash, citing financial sources.

Commerzbank has been in talks about buying Dresdner since June but there have been few public signs of life in the negotiations in recent weeks.

If it were to agree to a deal by the end of the month, Commerzbank would be able to avoid the complication of buying two banks instead of one.

Allianz will formally separate Dresdner's embattled investment bank from its retail branch business at the start of September.

German daily Die Welt reported that if Commerzbank does win Dresdner, the institutional investor department at Dresdner Kleinwort will be shut down, with 1,500 jobs set to be lost in London.

The new investment banking section would have 2,000 employees, with about 1,000 each from Commerzbank and Dresdner Kleinwort, the paper said, citing financial sources.

(Writing by Sylvia Westall; Editing by Maureen Bavdek, Phil Berlowitz)