Commerzbank enters final stretch in race for Dresdner

MUNICH/BEIJING (Reuters) - Commerzbank (CBKG.DE) entered the final stretch of a race to acquire Dresdner Bank from Allianz (ALVG.DE) amid doubts in Beijing on Thursday that China Development Bank would get state permission to bid.

A German deal, which could come as soon as this weekend, would fuse the country's second- and third-biggest banks, creating a group to rival the country's flagship lender Deutsche Bank (DBKGn.DE).

In recent days, China Development Bank CHDB.UL emerged as a would-be rival. But now a Beijing-based source close to that bank voiced skepticism on the idea of an offer from the Chinese.

He said China Development Bank was unlikely to buy Dresdner partly because of new German rules aimed at blocking unwanted foreign investment.

Interest, he said, has also been curtailed by tense diplomatic relations between Chancellor Angela Merkel and the Chinese government after she met the Dalai Lama, the exiled Tibetan spiritual leader.

"Germany is not very friendly towards China," he said.

Were China -- which has lost money on investments in Barclays (BARC.L), Morgan Stanley (MS.N) and Blackstone (BX.N) -- to drop out of the race, Dresdner is likely to be paired off with Commerzbank.

Earlier this week, sources close to the matter said that Commerzbank was racing to reach agreement on a deal by the end of the week as it prepared to ask its supervisory board to sign off the plans.

On Thursday, Allianz said it would call an extraordinary meeting of its supervisory board on Sunday. Its approval would be needed for any spin off of Dresdner.

ASLEEP AT THE WHEEL

A sale could let Allianz escape its unhappy marriage with Dresdner -- a deal struck seven years ago that paired investment bankers and insurance salesmen but which angered investors as losses spiraled.

Allianz, once seen as an unshakeable financial powerhouse, is now licking its wounds largely because of Dresdner.

The architects of the Dresdner takeover in 2001 had hoped to sell bank accounts to Allianz customers as well as products such as car insurance over the counter at bank branches.

Instead, Dresdner racked up losses of almost 3 billion euros ($4.4 billion) after the merger as cross-selling floundered.

In June last year, Reuters reported that Allianz had begun to mull its options for Dresdner. The jump in the insurer's share price that followed showed the degree of investor frustration with the botched takeover.

But finding a buyer has not been easy, mostly because of Dresdner's struggling investment bank, a business, said one insider, which Allianz had never intended to keep.

Now this business, ravaged by the markets crisis, is overshadowing the talks.

"It was clear from the start to Allianz that they did not want to keep the investment bank," said the source. "But when the time was right to sell it -- at the top of the investment banking boom in late 2006 -- they fell asleep at the wheel."

Taking over Dresdner, which analysts estimate to be worth about 9 billion euros, would give Commerzbank a badly needed leg up in Germany.

Despite being one of the country's biggest lenders, it is still a lightweight on the international stage with a market value of about 13 billion euros -- less than half that of Frankfurt neighbor Deutsche Bank.