Germany looks to be on the brink of a major shakeout in its fragmented banking industry with expectations of an announcement for a merger valued at around 8 billion euros ($12 billion) between the nation's second and third-largest banks.

A series of newspapers have reported that talks between Commerzbank and Dresdner Bank have entered a critical stage. The reports include outlines of a tie-up that would clear the way for the biggest restructuring of the German banking system in more than seven years.

"It must come to an end"

The Financial Times Deutschland reported that after months of talks the Commerzbank's bank board is set to reach a decision on the merger by Friday, Aug. 29.

"It must now come to an end -- one way or the other," Germany's weekly Welt am Sonntag quoted a company official close to the negotiations with the newspaper as saying on Sunday, Aug. 24. He also said the two banks had agreed to a structure for the transaction.

The deal, if it goes ahead, would create a group to rival German flagship Deutsche Bank. It would also let Dresdner parent Allianz escape the pair's unhappy marriage. Allianz, a Munich-based insurer, bought Dresdner seven years ago in a failed bid to bring together investment bankers and insurance salesmen. Instead, it angered investors as losses spiraled.

Extraordinary board meeting is set

Commerzbank has been in talks about buying Dresdner since June, but there had been few public signs of life in the negotiations in recent weeks.

Now, however, Commerzbank is planning to call an extraordinary meeting of its supervisory board in a signal that negotiations between the two have reached a critical stage, Reuters news service reported.

The 21-strong supervisory board is Commerzbank's governing body and its approval is required for large deals such as a merger with Dresdner.

Signing a deal by the end of August means Commerzbank can avoid the complication of buying two banks instead of one. Allianz will formally separate Dresdner's embattled investment bank from its retail branch business at the start of September.

Dresdner Kleinwort could also face change

Earlier this month Allianz announced the company had been forced to abandon its earnings forecast in the face of tough financial markets.

While Welt am Sonntag said Allianz would hold a 30-percent stake in the new merged Dresdner-Commerzbank group, analysts estimate that a Dresdner sale could generate about 8 billion euros for the Munich-based insurer.

Under the merger deal, Dresdner's investment house, Dresdner Kleinwort, would also face a major restructuring.

But company sources have also indicated to the dpa news agency that the deal could still fall apart as a result of questions arising about the valuations placed on aspects of the merger.