Allianz, Deutsche Bank and Dresdner Bank, Germany's leading financial institutions, are close to announcing a banking merger and three-way asset swap that will transform Europe's financial landscape.

Tomorrow, Deutsche and Dresdner are planning to announce that they are merging to create one of the world's largest banks, an asset management giant and European investment banking powerhouse. Simultaneously Allianz, the financial services group which is a shareholder in both banks, will announce it is acquiring Deutsche's $120 billion (€125.5 billion) DWS German mutual fund arm, a move that will reinforce its position as one of the world's largest asset managers.

Allianz, based in Munich, is also to take a stake of about 40 per cent in the new Deutsche-Dresdner combined retail banking unit. It is understood that this separate retail banking company is likely to be floated as a public company with Allianz, an insurer, boosting its equity stake. Allianz hopes to sell its savings products through the retail banking network and believes that Dresdner and Deutsche's branch network should help it pull in new assets from individuals.

As part of the deal, Allianz will also scale down its 21.7 per cent shareholding in Dresdner and stake of about 5 per cent in Deutsche, the first step in an expected wide-ranging shake-up of its web of German shareholdings. In addition, Deutsche and Dresdner are expected to place their respective 7.1 per cent and 10 per cent stakes in Allianz into a disposal vehicle.

Analysts said the unravelling of cross-shareholdings by the three financial groups was likely to speed up the pace of corporate change inside Germany by encouraging other mergers.