Italian bank UniCredit and smaller rival Capitalia look poised to create Europe's second-largest bank worth around $135 billion after confirming they are in merger talks.
The two lenders confirmed a potential tie-up was in the works after speculation over a deal gathered momentum over the past week.
No agreement has yet been reached, Capitalia said, but analysts expect a friendly, all-share offer from UniCredit next week.
Long considered an attractive target, Capitalia - worth about $28 billion on the market - has been eyed by other suitors like Dutch bank ABN AMRO.
But Italian media have speculated that Santander may yet try to trump a UniCredit bid with a rival offer.
