Commerzbank's pensions freeze has caused outrage in Germany

The paper said Commerzbank's move had been blocked because of the controversy surrounding the bank's decision to freeze staff pensions.

Commerzbank declined to comment on the newspaper report, which said the merger collapse was a blow for the bank's Klaus-Peter Mueller.

His pensions decision has been widely attacked by most German politicians.

Mr Mueller is a well known member of the right of centre Christian Democratic Union, but even leading lights in that party have been calling for his resignation after the pensions issue was revealed last week.

Over-banked

One dubbed him "an ugly capitalist", after Commerzbank was forced to admit it will be ending pensions contributions for its 26,000 German workers at the end of 2004.

Mr Mueller had wanted to become chief executive of the merged company, but with staff members making up half of each German bank's supervisory board, it is thought inevitable that those on HVB's board would have rejected a merger given the pensions controversy.

Both Commerzbank and the larger HVB have been seeking mergers for some time, with the German banking sector being long recognised as over-crowded and in need of consolidation.

HVB chief executive Dieter Rampl said the same last week.

"HVB will play an active role in this consolidation process," he said.

Until the pensions issue arose, Commerzbank was thought to be have been an obvious target for HVB because of its low valuation as a result of poor profitability.