Lloyds TSB is working on plans to buy Dresdner Bank, which has been put on the market by Allianz, the German insurance group, for an estimated £6 billion.

It is understood that plans are at an early stage and Lloyds TSB is considering a number of options in Germany and elsewhere in Europe. These could include bids for Postbank, Germany’s biggest customer bank, and Citigroup’s German operation.

One idea believed to be under discussion is a straightforward swap, with Lloyds handing its Scottish Widows life insurance business to Allianz in exchange for Dresdner’s retail operations. Lloyds has emerged relatively unscathed from the credit crisis, and has avoided the large write-offs that have damaged rivals such as Royal Bank of Scotland and Barclays.

It is understood that Sir Victor Blank, the chairman of Lloyds TSB, and Eric Daniels, the chief executive, are keen to capitalise on their bank’s strong balance sheet and make acquisitions while the valuations of other banks are low.

Dresdner has been damaged by credit market writedowns of more than €3 billion (£2.3 billion) in the past year. A spokesman for Lloyds TSB declined to comment.

Derek Chambers, analyst for Standard & Poor’s said: “The German retail financial services market might be logical. It is a large, mature and sophisticated market.” Other analysts said that a deal with a German bank offered limited opportunities for Lloyds. Because Lloyds has no operations in Germany, buying a bank there would generate limited cost savings, which might be unwelcome to shareholders.

Jane Coffey, the head of equities for Royal London Asset Management, said: “I don’t think they should be buying into German retail banking, which has been a structural nightmare for a long time. Lloyds’s benefit is that they have a strong balance sheet."

Mr Daniels credits Lloyds’s success to “good old-fashioned banking”, concentrating on retail and wholesale banking and on developing lifetime relationships with customers so that it can sell them a variety of mortgage, insurance and banking products.

During Mr Daniels’s five years as chief executive, Lloyds has also sold several overseas assets to concentrate on its UK operations. It raised its 2008 dividend for the first time in six years, after profits rose by 6 per cent between 2006 and 2007. This came after three straight years of earnings growth.

Commerzbank, Germany’s second-largest bank, and Santander, the Spanish owner of Abbey in the UK, are also rumoured to be looking at Dresdner.

Mr Daniels said earlier this month that in the current climate, banks are likely to pursue deals in other countries to snap up underperforming rivals.

In February, Mr Daniels told Lloyds shareholders that he would look “all the time” at opportunities to buy rivals. Lloyds was linked with a bid for the stricken mortgage lender Northern Rock last year, before the Treasury and the Bank of England intervened after a run on the bank last September.

Michael Diekmann, the chief executive of Allianz, last month said that it was in talks that might lead to a sale of Dresdner. Europe’s biggest insurer previously said that it planned to split Dresdner Kleinwort, the investment banking arm of Dresdner, from the rest of the company by the end of August.

— Ron Sandler, the executive chairman of Northern Rock, is preparing to hand over the day-to-day running of the nationalised mortgage lender to a banker with experience of the retail market. Headhunters have not been appointed and he did not indicate when the handover would take place.

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