DEUTSCHE POST looks set today to reject a late offer from Banco Santander of Spain to buy its Postbank subsidiary, accepting instead a rival bid from Deutsche Bank that has been hailed by Germany's government as a further step in strengthening the country's banking sector.

Deutsche Bank, Germany's biggest bank, is set to pay between €2.5 billion ($3.5 billion) and €3 billion for a stake of close to 30 per cent in Postbank.

It is also expected to agree an option to increase its stake later by buying the rest of Deutsche Post's holding of 50 per cent plus one share.

Santander revealed yesterday it had made Deutsche Post an indicative offer for all of Postbank, subject to due diligence.

People familiar with the logistics group said the offer from Deutsche Bank would represent better value for Deutsche Post's shareholders than the offer from Santander.

The acceptance of any deal is subject to confirmation by a meeting today of Deutsche Post's supervisory board.

A partial sale of Postbank, which has the most retail customers of any German bank, would be the second big deal in a month that consolidates the country's biggest financial institutions.

Peer Steinbrück, the finance minister, said yesterday such an outcome would be positive for Germany.

"It would meet the criterion I deem necessary - speeding up consolidation among commercial banks," he said.

Commerzbank this month agreed to buy Dresdner in a deal that will combine Germany's second and third largest banks.

German government officials have in past months repeatedly denied Berlin was trying to influence the outcome of the sales of Postbank or Dresdner.

- (Financial Times service)