Talks between the two banks were still very preliminary and a possible solution would be months away but the need to find common ground had become increasingly urgent as each bank faces grave threats to its independence, banking sources said. Commerzbank also has established contact with other banks besides its Frankfurt rival Dresdner, one industry source said following a report on Friday in newspaper Handelsblatt that the two banks were discussing a merger.

"There are exploratory contacts but these are at a very early stage. It's not as if there are negotiations. There are contacts aimed at exploring opportunities for cooperation in partial business areas and more broadly," the source said. Dresdner has struggled to regain credibility after its planned merger with rival Deutsche Bank AG collapsed in April, leading to the resignation of Dresdner's chief executive and other top managers and pushing it to the top of the European takeover targets list. Merger speculation concerning Commerzbank has intensified in recent months after Dutch-based holding firm Rebon BV announced that it had become the bank's largest shareholder with a 17 percent stake, saying it wanted Commerzbank to find an international partner.

Hansgeorg Hofmann, head of Rebon's German unit CobrA Holdings mbH and former chief of investment banking at Dresdner, declined to comment on the possibility that he had found a buyer for the stake, which gives Rebon effective control of Commerzbank. "It's a critical moment right now and I don't want to make any comments to the press," Hofmann told Reuters.

Commerzbank has left its door open to possible cooperation with Dresdner for several months now, the source said. But the need for each bank to find a solution to consolidation pressure has grown increasingly urgent, said a second Frankfurt banking source.

"With the whole Rebon stake, it (the possibility of a merger) has a little more urgency," the source said. Chief executives from Commerzbank and Dresdner Bank are not planning to meet this weekend to discuss a possible merger, contrary to some media reports, the source added.

"That's not a sign that this (possible merger) is on or off. It's a sign that it is months in the future," the second source said.

A Dresdner-Commerzbank merger would create a German retail and corporate heavyweight with a large international investment banking footprint. Commerzbank has strong retail and Internet-banking operations and prides itself on close ties to Germany's vibrant Mittelstand, or small- to medium-sized firms. Dresdner's pearl is its London-based investment bank, Dresdner Kleinwort Benson. Conflict over Kleinwort Benson's fate was what derailed Dresdner's earlier attempt to merge with Deutsche.

-- (Reuters)