Lloyds TSB eyes potential German deal: sources

By Steve Slater and Mathieu Robbins

LONDON (Reuters) - British bank Lloyds TSB (LLOY.L) would consider a significant acquisition and is looking at a possible deal in Germany, people familiar with the situation said on Saturday.

It is considering deals for Dresdner Bank, owned by insurer Allianz (ALVG.DE), and Deutsche Postbank (DPBGn.DE), the retail bank at the centre of takeover speculation, one of the sources said.

Lloyds declined to comment on whether it is looking at Dresdner, Postbank or the German operations of U.S. bank Citi (C.N), which are also up for sale.

Lloyds Chief Executive Eric Daniels has signaled recently that the bank would consider a deal. It outperforms rivals in its core UK market and a sharp fall in bank valuations has created opportunities.

Lloyds has been in talks with Allianz for weeks over Dresdner, Germany's Der Spiegel reported on Saturday, without citing sources. It said the UK bank had submitted a non-binding bid for Dresdner.

The fragmented German banking industry is in talks that could result in some of the country's biggest names changing hands this year.

Deutsche Postbank is up for sale, Allianz may spin off loss-making Dresdner and Citi plans to sell its retail business.

Dresdner's retail banking business could be worth about 8 billion euros ($12.4 billion). Commerzbank (CBKG.DE) is already in advanced talks about a deal and Spain's Santander (SAN.MC) is also mulling a move, sources have said.

Lloyds' strong capital position and a resilient performance by its UK arm in tough trading conditions give the bank an advantage over its rivals, analysts have said.

Daniels said earlier this month that banks are likely to pursue cross-border deals to pick up underperforming rivals or compensate for slower economic growth. "Short-term consolidation may be opportunistic as some banks are more adversely affected by dislocation than others," he said.

Daniels outlined a three-phase recovery plan when he became chief executive five years ago, but has said up to now that the bank is still in phase 2. Phase 3 aims to expand by product or geography.

In February he said he was alert to acquisition opportunities, stoking speculation he could make a move on smaller UK rival Alliance & Leicester ALLL.L.

He considered stepping in to buy Northern Rock NRK.L before its funding crisis erupted last September, but backed away from a deal after regulators refused to provide extended funding for Northern Rock's debt.

(Additional reporting by Christiaan Hetzner in Frankfurt; Editing by Catherine Evans)