The possible banking merger of Germany's HypoVereinsbank Group AG (HVB) and UniCredito Italiano SpA is still shrouded in speculation, but on Wednesday events conspired to shed light on the progress of a deal which could create a bank with about 733 billion euros ($897 billion) in assets.

According to a report in Germany's Börsen Zeitung, HVB, formed from the merger of Hypo-Bank and Bayerische Vereinsbank seven years ago, and UniCredito are expected to reach an agreement later in June, some months earlier than indicated by UniCredito's deputy chairman Fabrizio Palenzona on Tuesday when he estimated the deal to be finalized by September or October.

The report stated that HVB's chief executive Dieter Rampl and chief financial officer Wolfgang Sprissler have informed the supervisory board of the talks with UniCredito while the Italians were also preparing to take over HVB in an estimated 16 billion euro share swap.

Board may block merger

However, the merger may face opposition both from the head of the HVB supervisory board, Albrecht Schmidt, and Germany's works council according to the Financial Times Deutschland, citing sources within the financial industry.

Schmidt, a former CEO of the bank, has recently reiterated his long-standing belief that HVB would not be sold off as a junior partner in an unequal merger. But since UniCredito's market capitalization is almost double that of the German bank, the talks bare less centered on a merger but more on a takeover of HVB by the Italians.

While formal opposition to the deal is unlikely to materialize until the details are announced, Peter König, the head of the works council, called for the continued independence of the bank to prevent job losses, firmly stating: "We can make it on our own." Despite the belligerent tone, König admitted that an international merger would have less grave consequences than a domestic one. An inner-German merger could result in as many as 10,000 job cuts.

Europe's biggest banking takeover?

If the deal is agreed at 16 billion euros -- the value of HVB after two days of speculation over the merger boosted its shares by 5.2 per cent -- it would be the biggest cross-border banking takeover in Europe, exceeding the 12.4 billion euros that Santander Central Hispano, the largest bank in Spain and Latin America, paid last year for Britain’s Abbey National.

The new bank's combined assets would see it leapfrog the Credit Suisse Group to take the number eight slot in the league table of European banks by assets. The Swiss UBS, London's HSBC Holdings and Credit Agricole of France are Europe’s biggest banks by assets.

The merger would also give UniCredito control of Bank Austria Creditanstalt, which has 10 million clients in Eastern Europe.

"The main attraction would be the creation of a clear number one in Central and Eastern Europe, almost double the size of the next-largest Western bank," London-based Merrill Lynch analyst Stuart Graham told reporters last week.

German skepticism

The issue of national control has often been raised whenever a bank merger has been touted in Germany. Political resistance in Berlin scuppered a potential sale of Deutsche Bank last year to American rival Citigroup. The German government was less than happy that Germany's largest bank could be absorbed by a rival from the United States.

HVB is a smaller bank with less political clout and it is unlikely that the government would be forced to intervene in a takeover by UniCredito. However, HVB has long been some by some in the banking industry as a potential merger partner for Commerzbank, another large German private bank, and those rumors could be revived by UniCredito's interest leading to a rival bid or exertion of national pressure from the capital.