Deutsche Bank CEO Christian Sewing on the weekend agreed to hold tentative talks with local rival Commerzbank after the German government expressed concerns about lagging performance and the possibility of a foreign takeover of Commerzbank.
Shares of Deutsche Bank were up more than 5%, or 47 cents, at $9.12 in late morning trading on the New York Stock Exchange. Shares of Commerzbank, meanwhile, were up 6.4%, or €43 cents, to €7.08 in Frankfurt.
Deutsche Bank has struggled to generate sustainable profits since the 2008 financial crisis and has paid billions of euros in penalties and fines.
Those in favor of a merger said a tie-up would create a bank with an equity market value of more than €24 billion (US$27 billion), based on Friday's closing share prices, and a 20% share of the German retail banking market.
New York-based Cerberus, a $35 billion private-equity group that is one of the biggest shareholders in both Deutsche Bank and Commerzbank, is reportedly keen on a merger.
A combined firm would create Europe's second-biggest bank behind HSBC (HSBC) and fend off unwanted potential bidders such as French giant BNP Paribas.