FRANKFURT, Germany (AP) _ Still bruised from its failed merger with Deutsche Bank, Germany's Dresdner Bank confirmed Monday it was talking with another potential partner, smaller crosstown rival Commerzbank.

Dresdner, which is Germany's third biggest bank, and Commerzbank said in a statement they were talking about ``a range of possible business combinations'' and that the ``discussions are at a very early stage.''

A combined bank would be Germany's second largest behind Deutsche Bank with assets of about $713 billion and would also have greater international reach.

Dresdner's investment banking division has little overlap with that of Commerzbank, a critical issue that torpedoed this spring's deal with Deutsche.

Analysts say it is crucial for both banks to find an ally so they can cut costs in retail banking and back office activities, such as accounting and purchasing.

``If you look at any German street corner, you see a Commerzbank next to a Dresdner Bank next to a Deutsche Bank next to a Hypo-Vereinsbank,'' said Karl Herold, a banking lawyer with James Day in Frankfurt. ``That makes for very inefficient operations.''

But it is still unclear whether Dresdner will seal a deal with Commerzbank, which reportedly approached Dresdner for talks. Dresdner backed out of the Deutsche deal in April, when Deutsche said the combined bank would dump Dresdner's highly profitable investment arm, Dresdner Kleinwort Benson, in favor of its own.

``Hopefully the German banking community has learned from the fiasco of Deutsche and Dresdner bank that they have to do their research to make sure a merger is a good match in all areas of their business,'' Herold said. ``I can't imagine that mistake would be made twice.''

A deal with Commerzbank is not expected anytime soon, and the banks said Monday that no further public statements about the talks will be made in the short-term.

Just days after the Deutsche deal fell through, Commerzbank chairman Martin Kohlhaussen was already tossing out the possibility of a Dresdner hookup, saying ``I wouldn't exclude that Dresdner is a good match.''

Both banks have similar goals of expanding their reach in the highly profitable investment banking sector and trimming costs in the low-profit business of corner banks. Combined, they would hold roughly 7 percent of Germany's retail banking sector.

Both banks are also looking to penetrate the U.S. market, where they currently have only a meager presence.

Commerzbank would also be a clear junior partner in a merger. That could avert the power struggle that soiled the Deutsche deal, which was billed as a merger of equals but amounted to a full-scale takeover by Deutsche.

``Both banks have made it clear they won't be rushed into anything,'' Herold said. ``But Dresdner is making it clear there will only be a merger on its terms.''

Still, a big stumbling block could be both banks' major shareholders.

The head of Dutch-based Cobra Beteiligungsgesellschaft, which owns 17 percent of Commerzbank, said he would support a merger only if it boosts the share price, the Financial Times Deutschland reported Monday.

German insurance titan Allianz _ a 22 percent stakeholder in Dresdner _ could also block a merger. Its Italian rival Assicurazioni Generali SpA owns 5 percent of Commerzbank. Both insurance companies use the retail banks as channels to sell their policies, and a merger could give Assicurazioni a bigger platform to start poaching customers in Allianz's backyard.