The German banking sector is braced for further consolidation after Deutsche Bank said it was in advanced talks to buy a stake in Deutsche Postbank.
The announcement ends weeks of rumours as Deutsche Bank looks to boost its consumer business to offset credit crunch-related losses.
Deutsche Postbank is the retail banking division of the German post office.
The chief executive of Deutsche Bank confirmed the firm was in "advanced discussions" with Postbank.
Josef Ackermann said Postbank - which is Germany's biggest lender by assets - was a good fit for his firm, but added the discussions had not yet reached a conclusion.
A decision could be reached as soon as Friday when the supervisory board of Deutsche Post are due to meet.
German press reports have suggested that Deutsche Bank may initially buy less than 30% of Postbank in an attempt to thwart rival suitors until it is in a better financial position to buy the outstanding shares.
Market movements
With 15 million customers, Postbank offers Deutsche Bank a strong distribution network for its products.
It would also allow it to compete better with the enlarged firm created by a merger between its rivals Commerzbank and Dresdner.
Earlier this month, Commerzbank agreed to buy Dresdner bank from Allianz in a 9.8bn euros ($13.6bn:£7.8bn) deal.
Postbank shares fell more than 5% to 44.5 euros in early trading, as investors took profits after the share price rallied on Wednesday. Deutsche Bank shares lost 1.8%.
Postbank has declined from a peak 67.1 euros in February this year, leaving it with a current market value of 7.3bn euros.
Deutsche has been been forced to make more than 5bn euros worth of write-downs since the start of the year due to exposure to bad commercial property loans and residential mortgages.
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