June 17 (Bloomberg) -- Citigroup Inc. narrowed the list of bidders for its German consumer lending unit to include Deutsche Bank AG, Credit Mutuel Group and Commerzbank AG, said three people with knowledge of the sale.

The deadline for a second round of offers was set for early July, according to the people, who declined to be identified because the matter is confidential. The unit may fetch between 3 billion euros and 5 billion euros ($7.7 billion), the people said.

Citigroup, reeling from losses on subprime-infected assets, is weighing a sale of the Dusseldorf-based unit as Chief Executive Officer Vikram Pandit disposes of $400 billion of assets to shore up capital. Deutsche Postbank AG, Germany's biggest consumer bank by clients, and Allianz SE's Dresdner Bank may also be sold, opening the door for competitors to gain a bigger slice of the German market, which is still dominated by state-owned lenders.

``Citigroup really needs fresh capital,'' said Manfred Jakob, a Frankfurt-based analyst at SEB AG. ``The unit should be easy to sell because it is efficient and profitable.''

About 10 banks submitted initial bids by June 4, according to the people. There may still be at least one additional bidder under consideration after the first round, they said.

Spokesmen for Citigroup, Deutsche Bank, Commerzbank and Credit Mutuel declined to comment. An official at Credit Mutuel said last week the Paris-based bank was interested in the unit.

`Tooth and Claw'

Citibank Privatkunden AG, the market leader for consumer loans in Germany with 340 branches and about 3.2 million clients, had net income last year of 365 million euros, a 16 percent decrease from 2006. Andreas Weese, a Munich-based analyst at UniCredit SpA, estimated last month the unit could be valued at as much as 5 billion euros based on 2007 profit.

Takeovers would shake up financial services in a market where ``tooth-and-claw'' competition has sapped profitability, Citigroup analysts said in a February report. Germany's five biggest private banks together hold 12 percent of the nation's 1 trillion-euro consumer lending market, Bundesbank data show.

Commerzbank, Germany's second-largest bank by assets, is also in talks with Munich-based Allianz about a combination with Dresdner, two people with knowledge of the matter said on June 13, a move that would double its branch network in Germany.

Citigroup fell 0.4 percent to $20.74 by 12:45 p.m. in New York Stock Exchange composite trading. Deutsche Bank gained 1.4 percent in Frankfurt, while Commerzbank climbed 1.1 percent.

Assets for Sale

Citigroup's Pandit may sell assets including the life insurer Primerica Corp. and its Brazilian retail banking unit after booking more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year, according to analysts. He will also get rid of ``legacy assets,'' including real estate holdings and collateralized debt obligations such as bonds backed by pools of mortgages.

The former head of Citigroup's German operations, Sue Harnett, left the bank in November to return to the New York headquarters. The company never named a replacement.

Deutsche Bank Chief Executive Officer Josef Ackermann reiterated last month he may seek acquisitions to bolster consumer banking and offset declines in investment banking. The company, which in April said it would be interested in the Citibank division, purchased German lenders Norisbank and Berliner Bank for 1.1 billion euros in 2006.

To contact the reporters on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net;

Last Updated: June 17, 2008 12:50 EDT