Dresdner Bank, Germany's third largest bank, has agreed to pay $1.37bn for US investment bank Wasserstein Perella.

The Wall Street firm will be merged with Dresdner's own investment banking division Dresdner Kleinwort Benson.

The combined company will be called Dresdner Kleinwort Wasserstein. In the banking league tables, it would be the world's sixth biggest adviser on mergers and acquisitions.

Dresdner will pay in stock, and plans to fund the deal by issuing new shares. The bid still needs the approval of the German bank's supervisory board.

Dresdner Bank is still smarting from two failed merger deals this year.

The bank first tried to link up with its largest rival in Germany, Deutsche Bank. After negotiations broke down it was in talks with the country's number four, Commerzbank.

However, this deal fell apart as well.

The German stock market reacted without much enthusiasm to the Wasserstein deal, sending Dresdner's stock more than 2% lower. Analysts said the bank might be paying too much for its US acquisition.

Track record

Wasserstein Perella is one of Wall Street's smaller investment banks, but has been involved in some of the world's top merger deals.

The bank was instrumental in setting up the merger of AOL and Time Warner, and advised the world's largest insurance group Axa Financial when it sold its stake in Donaldson, Lufkin & Jenrette to Credit Suisse First Boston Group.