Frankfurt  - Germany's Commerzbank AG and Allianz SE have reached a deal worth up to 9 billion euros (13.3 billion dollars) to sell the giant insurer's banking offshoot, Dresdner, to Commerzbank, sources close to the negotiations told dpa-AFX Friday.

Allianz chief executive Michael Diekmann and his Commerzbank counterpart Martin Blessing met late Thursday and agreed in principle to the Dresdner sale, the sources said about a deal which would be the biggest restructuring in the German banking system in more than seven years.

The agreement between Diekmann and Blessing came ahead of meetings Sunday of the boards of Allianz and Commerzbank, which are widely expected to sign off on a merger between the two banks.

With total assets of about 1.09 trillion euros the creation of a merged Commerzbank-Dresdner bank would result in a major reshaping of Germany's fragmented banking sector.

However, Deutsche Bank AG would remain the largest bank in the country with assets totalling nearly 2 trillion euros.

The business daily Handelsblatt reported Friday that Allianz believed the obstacles to selling off its troubled banking offshoot to Commerzbank had now been overcome. The Die Welt newspaper said German banking supervision authorities had already signalled agreement for the Dresdner sale.

"Security for the transaction has been created," Handelsblatt quoted a participant in the negotiations between Commerzbank and Allianz as saying.

Investors are also betting that Germany is facing a new round of bank consolidation. Meanwhile Allianz shares rose by one more than 1.0 per cent after strong gains Thursday on hopes that the Munich- based insurer may have found a solution for Dresdner, which has been badly hit by the global credit crunch.

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

However, the possibility that Allianz could formally unveil on Sunday a deal to merge its Frankfurt-based Dresdner with cross-town rival Commerzbank, helped to undercut Commerzbank shares as a result of concerns about the merger costs.

By mid-morning Commerzbank shares were down 1.4 per cent at 20.18 euros. Allianz stock had gained 1.1 per cent and was trading at 114.77 euros.

The Commerzbank board meeting in Frankfurt and the Allianz board meeting in Munich are the climax of speculation about a tie-up between Dresdner and Germany's second biggest listed bank after Allianz announced in March plans to sell off its banking operation.

But the talk of the merger has already set the alarm bells ringing among unions amid concerns that a fusion between the two banks could lead to job cuts of up to 15,000 from the financial houses' combined workforce of 63,000 employees.

Quoting sources close to the negotiations, Handelsblatt reported Thursday that about 9,000 jobs worldwide could be at risk through the merger.

However, a so-called German solution to Dresdner's problems through a sale to Commerzbank has long been considered the most likely outcome to Allianz's deliberations on the future of its banking group.

This is despite talks with the state-owned China Development Bank, which it is believed was prepared to offer more for Dresdner than Commerzbank and to pay in cash.

But dpa-AFX reported that Allianz did not receive its first offer from the Shanghai-based bank until Tuesday, which was too late as the insurer was under time pressure to forge ahead with plans to restructure Dresdner by the end of the month.

Under the Commerzbank deal, Dresdner's investment house Dresdner Kleinwort is also expected to face a major restructuring.

The negotiations over the possible sale of Dresdner to Commerzbank have also been held against the backdrop of worries about the impact on both banks of the fallout from the US subprime mortgage market crisis.

While Dresdner this month posted its fourth consecutive quarterly loss in the three months to the end of June, Commerzbank's mortgage group Eurohypo has been forced to beef up its loss provisions.

Allianz paid 21 billion dollars for Dresdner in 2001 as part of an ambitious plan to sell its pension and insurance schemes through Dresdner's network of more than 800 branches. (dpa)