Commerzbank races to reach Dresdner deal: sources

FRANKFURT (Reuters) - Commerzbank (CBKG.DE)is racing to reach 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 the plans, sources close to the matter have told Reuters.

The deal, if it goes ahead, would fuse Germany's second- and third-biggest banks, creating a group to rival the country's flagship Deutsche Bank (DBKGn.DE).

It would also let Allianz (ALVG.DE) 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 spiraled.

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

Now, however, Commerzbank is planning to call an extraordinary meeting of its supervisory board in a signal that negotiations between the two have reached a critical stage.

The 21-strong supervisory board is Commerzbank's governing body and its approval is required for large deals such as a merger with Dresdner.

One source familiar with the situation said Commerzbank was already preparing to announce the takeover.

Agreeing a deal by the end of the month means Commerzbank can 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.

DASHED DREAMS

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 ($4.5 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 frustration about Dresdner.

On Monday, Allianz shares were up about 1 percent at 0735 GMT. Commerzbank shares were off 2 percent.

But finding a buyer has not been easy, mostly because of Dresdner's struggling investment bank. Its difficulties during the markets crisis threatened to derail the talks.

A takeover 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.

Analysts estimate Dresdner's retail business to be worth about 8 billion euros.

(Additional reporting by Patricia Uhlig and Matthias Inverardi in Duesseldorf; editing by Sue Thomas)