Other Frankfurt banks may be under threat

The merged banking-to-insurance giant will have 23 million customers in Germany alone, with a stock market value of $100bn.

The take-over agreement comes after a year of frantic manoeuvring among Germany's financial giants, including two failed banking mergers involving Dresdner Bank itself.

Pension provision

The driving logic behind the tie-up with Allianz is the expected explosion in private pension provision in Germany.

Faced with an ageing population, the German government is preparing to use a mixture of tax incentives and coercion to get more people into private and company schemes.

The pensions industry expects business to grow by 15 % annually.

"In the past, the divide between banks and insurers was clear," Allianz Chief Executive Henning Schulte-Noelle said.

"Then the borders began to disappear, most of all in the areas of retirement savings and private investment.

Future consolidation

While the banking business will continue to operate largely autonomously within the new group, Dresdner's 1,200 high street branches will in future play a critical role as sales outlets for Allianz's pensions and insurance policies.

Bernt Fahrholz, Dresdner Bank's chairman, said the Allianz deal was a major step towards consolidation of the German financial sector, unravelling a complex web of cross shareholdings.

As part of the agreement, Munich Re, the world's biggest insurer, will trade its holdings in Dresdner and Allianz, for a increased stake in its partner Hypo-Vereinsbank, leading to a possible merger.

That deal, creating a Munich-based banking- to- pensions powerhouse, throws down the gauntlet to Germany's other Frankfurt-based banks.

Deutsche Bank is already in talks with the French insurer AXA, but the smaller Commerzbank looks increasingly isolated.

Mr Fahrholz also insisted that the take-over would mean no new job cuts above the 5,000 announced a year ago, which have nearly been achieved.

Separately, Allianz said it would keep a majority stake in the investment banking arm, Dresdner Kleinwort Wasserstein, once it had been floated separately on the stock market.

Last year arguments about the fate of Dresdner's investment arm triggered the collapse of its merger plans with Deutsche Bank.