COMMERZBANK is in the final stages of agreeing a complex €9 billion (£7 billion) takeover offer for its German rival Dresdner Bank.

A meeting of Commerzbank’s 21-strong supervisory board is scheduled for this week, with expectations mounting that the deal could be announced soon after.

Talks between Commerzbank and Dresdner’s parent company, the insurer Allianz, have been going on for weeks. The combined group would pose a credible challenge to Deutsche Bank’s dominance of German retail banking.

The final terms of the deal are still being discussed, according to German banking sources. Allianz has offered to indemnify Commerzbank against up to €1 billion of Dresdner credit losses to allow the deal to go through.

On that basis, Commerzbank would pay €9 billion to buy Dresdner, according to sources close to the talks. It is understood both numbers are still being discussed but a proposal is close to being agreed.

It is unclear what will happen to Dresdner Kleinwort, the investment-banking division of Dresdner that is based largely in London.

Commerzbank’s investment-banking division is heavily focused on derivatives trading, while Dresdner has a large corporate-finance and broking operation.

Some industry sources have claimed that Dresdner K l e i n w o r t b o s s e s m a y attempt a management buy-out, although it is unclear how such a deal would be financed in today’s market environment.

Allianz has been attempting to dispose of Dresdner for some time. Lloyds TSB and Santander are among the other interested bidders, although a German solution was always considered the most likely outcome.

The pride of the German financial sector has been badly damaged by the global credit crisis. IKB, one of several small German lenders to get into trouble, was sold last week to Lone Star, the American private-equity group.

When Allianz and Dresdner merged in 2001 it was seen as the start of a spell of consolidation for Germany’s financial sector. The disposal of Dresdner is now being spoken of in the same terms.

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