May 23 (Bloomberg) -- Combining Deutsche Postbank AG with Allianz SE's Dresdner Bank and Commerzbank AG would create Germany's largest consumer bank, dwarfing Deutsche Bank AG.

The group would have about 2,750 branches and more than 20 million German clients, compared with Deutsche Bank's 987 branches and 9.7 million customers, company reports show. Allianz and Commerzbank are joining together in a 10 billion-euro ($15.7 billion) bid for Postbank, Manager-Magazin said yesterday, citing unidentified people familiar with the matter.

``This would create a big giant in one fell swoop,'' Stefan Mueller, managing partner at Proprietary Partners AG in Frankfurt, said in an interview on Bloomberg Television today. ``The question is what Deutsche Bank will do.''

Germany's largest banks have been positioning themselves for takeovers since Deutsche Post AG, the majority owner of Bonn- based Postbank, said last year it was assessing a possible sale. Postbank, with 14.5 million customers and 850 branches, offers a rare opportunity to grab a slice of Germany's consumer banking market, which remains dominated by state-owned lenders.

Postbank rose 2.8 percent to 62.31 euros in Frankfurt trading, valuing the Bonn-based lender at 10.2 billion euros, while Deutsche Post added 1.4 percent. Commerzbank slipped 0.2 percent, Allianz fell 1.2 percent, and Deutsche Bank dropped 2.1 percent.

Fragmented Market

Deutsche Post has started to collect bids for Postbank, Die Welt reported today, without saying where it got the information.

Separately, WirtschaftsWoche reported today that Deutsche Bank is in preliminary talks to buy the German consumer unit of Citigroup Inc., citing unidentified people close to the U.S. lender. Deutsche Bank spokesman Ronald Weichert declined to comment, as did Citigroup spokesman Bjoern Korschinowski. New York-based Citigroup said May 16 it was weighing options for the unit, which has 340 branches.

The combinations would shake up the German banking industry, which has remained more fragmented than those in France and Britain. The overlap between competing banks in Germany has led to ``tooth-and-claw'' competition that's sapped profitability, analysts at Citigroup said in a February report.

Germany's five biggest private banks together have a 12 percent share of the nation's 1 trillion-euro consumer lending market, according to Bundesbank data.

Raising Market Share

``A move towards more concentration would be of great use,'' said Peter Braendle, who helps manage the equivalent of $56 billion at Swisscanto Asset Management in Zurich. ``The German banking market in its current state would give every bank that pushes the concentration forward the opportunity to raise its market share tremendously.''

Commerzbank Chief Executive Officer Martin Blessing told Bloomberg Television today that ``we can imagine a lot, we can imagine nothing happening,'' when asked about a possible combination with Dresdner and Postbank.

Christian Kroos, a spokesman for Allianz in Munich, declined to comment on the Manager-Magazin article, as did Postbank spokesman Joachim Strunk and Deutsche Post spokesman Martin Dopychai.

Allianz, Europe's largest insurer, is in talks that might lead to a sale or merger of Dresdner and sees the first ``realistic possibility of a significant consolidation'' in Germany's banking market, Chief Executive Officer Michael Diekmann told shareholders at the annual meeting two days ago.

Allianz, Dresdner

Allianz is considering ``all options'' for Dresdner Bank, Chief Financial Officer Helmut Perlet said earlier this month.

Dresdner, which Allianz bought for 23.5 billion euros in 2001 in its biggest-ever acquisition, has been a drag on the insurer's earnings. Allianz is discussing a merger of Dresdner's retail banking operations with Commerzbank and Postbank to create a company in which Allianz would take a stake, the Financial Times reported today, citing people familiar with the matter.

Deutsche Bank, which ended talks about a combination with Dresdner in 2000 because the banks couldn't agree on how to combine their securities units, and Commerzbank have said they would be interested in Postbank.

Deutsche Bank Chief Executive Officer Josef Ackermann expanded consumer banking operations by purchasing German lenders Norisbank and Berliner Bank for a combined 1.1 billion euros in 2006. Ackermann in a speech on May 6 repeated his interest in making acquisitions to build up the Frankfurt-based company's ``stable businesses'' of retail banking and asset management.

In 2004, Ackermann considered a takeover of Postbank before breaking off talks because Deutsche Bank was managing the lender's initial public offering at the time.

``A deal between Allianz, Postbank and Commerzbank would lead to a serious competitor for Deutsche Bank,'' said Carsten Klude, head of investment strategy at M.M. Warburg & Co. in Hamburg. ``The transition and integration period to that end will be very stony.''

To contact the reporter on this story: Hellmuth Tromm in Berlin at htromm@bloomberg.net

Last Updated: May 23, 2008 12:06 EDT