The deal must still be approved by each bank's supervisory boards, but is expected to go through by July 1. The merger brings together Germany's biggest bank and its No. 3 player, and could trigger an international grab for partners in the banking sector.

As the Deutsche-Dresdner deal was being announced, the Berlin daily Die Welt reported that Britain-based HSBC Holdings was eyeing a buyout of Commerzbank AG, Germany's fourth-largest bank.

Commerzbank declined comment on what it called market speculation.

Most of the recent megabank deals have been within national borders, although Deutsche Bank swallowed New York-based Bankers Trust last year to claim the No. 1 spot in terms of assets, with $840 billion.

Another pending deal involving Japanese giants Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan, with roughly $1.3 trillion in assets, would top the combined Deutsche-Dresdner merger, but it will not be completed until 2005.

While the German banks called Thursday's deal a "merger of equals," Deutsche Bank will be the dominant partner, holding between 60 percent and 64 percent of the combined banks and Dresdner the rest. The two banks also plan to spin off their retail unit in the next three years.

The merger is expected to save the company $2.8 billion by wiping out overlapping operations.

Streamlining those services could entail closing a third of their combined 3,800 branches and laying off 16,500 of their 146,000 employees, Deutsche Bank supervisory board member Gerhard Renner, representing union employees, said Wednesday.

Deutsche Bank may also close Dresdner's investment banking arm, Dresdner Kleinwort Benson, according to a report Thursday in the Financial Times. That could wipe out another 6,000 jobs for investment bankers and administrative positions.

Deutsche Bank has its own investment banking arm, Deutsche Morgan Grenfell.

Deutsche Bank's chief executive Rolf Breuer and Dresdner's Bernhard Walter will be co-chief executive officers of the new bank, which will retain the name Deutsche Bank AG while adopting Dresdner Bank's green corporate color over Deutsche's blue.

The new bank would focus on investment banking, an area traditionally dominated by U.S. investment houses. Analysts say that is a more profitable sector than retail banking.

"The merger with Deutsche Bank will increase their ability to compete with `bulge bracket' banks like Citigroup and Goldman Sachs," said Daljit Singh, a bank analyst with Jones Day in London. "Both Deutsche and Dresdner have been trying to expand in the United Kingdom and United States for a long time. The merger will allow them to combine resources and expand more rapidly."

Despite the job losses, German politicians generally welcomed the merger as an overall plus for Germany. Ditmar Staffelt, a spokesman for the governing Social Democratic party, said it would strengthen the country's standing as a center of international finance, the Frankfurter Allgemeine Zeitung reported Thursday.

The retail activities of both institutions will be merged into Deutsche Bank 24, which will go public within the next three years. The Munich-based insurance giant and holding company Allianz AG will take a minority stake in the retail bank and will also manage Deutsche Bank's insurance activities and take over the DWS-Group, the bank's asset management branch.

The shake-up in German banking was made possible in part by Allianz, which holds major stakes in each bank. It will increase its stake in the spun-off retail services in several stages.

That would allow Allianz to exploit the spun-off unit, to be called Bank 24, as a channel to sell investment and insurance services to nearly 10 million customers.