Italy's UniCredit has recently expressed an interest to the German government about merging with state-backed Commerzbank, two people familiar with the matter said, adding that any deal would only come in the medium term.
Italy's largest bank signaled its interest for what would likely be an all-share deal that could come once UniCredit's turnaround over the next two years is complete, in recent months as it scouts for potential partners in Europe, the sources said.
The early expression of interest to the German government, which owns a 15 percent stake in Commerzbank dating back to when it was rescued during the financial crash, lays a foundation for what could be one of Europe's largest cross-border mergers.
For now, however, the contact is at an early stage. One person familiar with the matter said other groups had also expressed interest in Commerzbank to the government.
A spokeswoman for UniCredit declined to comment, adding that the Italian bank was focused on its strategic turnaround, while Commerzbank declined to comment.
A number of hurdles, including overcoming possible German misgivings about ceding one of the country's chief lenders to a foreign buyer, would have to be crossed before any deal.
"UniCredit has been in touch with the German finance ministry," said one of the people, adding that while the government was open to a sale, Commerzbank had not shown any interest.
Asked whether there had been expressions of interest in the government's Commerzbank stake, a German finance ministry spokesman declined to comment, saying "officials are contacted by financial investors on a range of issues".
"We have always said that the government does not want to keep its (Commerzbank) stake forever and wants to get a good result for the taxpayer," he added.