Allianz Mulls Three-Way Bank Merger

The Munich insurance giant is considering merging its troubled subsidiary Dresdner Bank with German banks, Commerzbank and Postbank

Germany's banking landscape could be on the verge of a huge upheaval, according to reports in two major national publications.

Munich-based insurance giant Allianz is said to be considering a massive three-way merger of its troubled subsidiary Dresdner Bank with Commerzbank and Deutsche Postbank, the respected German daily Frankfurter Allgemeine Zeitung reports in its Friday edition.

According to the FAZ, the mooted model foresees Allianz transferring Dresdner Bank as an asset to Commerzbank -- Germany's second-largest bank -- as a so-called non-cash contribution. The newly formed institution, with Allianz as a major shareholder, would then acquire a majority stake in Postbank, which is expected to be sold in the coming months. The resulting entity would rival Germany's largest bank, Deutsche Bank, in size as well as being the largest German retail bank with more than 26 million customers. However negotiations on such a merger have not yet started, the newspaper reported.

"Within Allianz, it has already been clear for a year that its banking activities will either be strengthened or divested," the newspaper quoted an unnamed source close to the company as saying. The company had been preparing for either option when it decided two weeks ago to split Dresdner Bank into two divisions, one focusing on investment banking and the other on private and corporate banking.

But as well as the potential merger, another option is also apparently on the table. SPIEGEL's sister publication Manager magazine reported in its Friday edition that an unnamed Chinese institution wants to buy the investment banking arm of Dresdner, Dresdner Kleinwort, together with the bank's major customers.

The daily newspaper Süddeutsche Zeitung reported Friday that the Chinese sovereign wealth fund China Investment Corporation (CIC) is interested in buying the entire bank, complete with its retail banking activities, and that there have already been intensive negotiations. However, the newspaper said that Allianz's management board is divided over a possible sell-off to CIC.

CIC has a part of China's massive foreign currency reserves at its disposal and already owns part of the US private equity firm Blackstone as well as the investment bank Morgan Stanley.

Allianz has repeatedly tried in the past to bring its troubled Dresdner Bank subsidiary back on track. It has carried out a series of restructurings since it acquired the bank for €24 billion ($38 billion) in 2001, without success. Dresdner Bank had to make write-offs of €900 million in the fourth quarter of 2007 alone due to the ongoing international financial crisis.

Before it's here, it's on the Bloomberg Terminal.