ABN Amro Holding, the Netherlands' largest bank, said Monday it was in early-stage talks about a "potential combination" with the British bank Barclays.
The disclosure came amid reports that Barclays was eyeing a possible purchase of its smaller rival. At Monday's closing stock prices, ABN Amro was worth about $76 billion.
In a statement, ABN said the talks were "exclusive preliminary discussions with Barclays PLC concerning a potential combination of the two organizations."
Barclays, Britain's third biggest bank by market capitalization, said Monday it would update the market on its position toward ABN by Tuesday.
If a deal were struck, it would be one of the biggest cross-border combinations in European banking history.
ABN shares jumped on the news, continuing a climb that began in December and accelerated in February, when hedge fund TCI said the shares were undervalued and management should split or sell the company. TCI holds about 1% of ABN shares.
After Monday's rise, ABN Amro's market capitalization was about 57 billion euros. Barclays shares dropped less than 1 percent to close at 677 pence ($13.15) in London. They also declined in New York.
"We'll look at the business case over the next several weeks and update (the market) when appropriate," said ABN Amro spokesman Neil Moorhouse.
He declined to give further details. The statement said the talks "are at an early and exploratory stage and there can be no certainty that they will lead toa transaction."
British brokerage Collins Stewart called the idea of a takeover "credible but low probability," noting that Barclays has been rumored to be interested in ABN Amro in the past but a deal failed to materialize.
"Fundamentally, Barclays and ABN have limited overlap" in terms of geographical strengths, analyst Alex Potter wrote in a note to investors.
Potter said there would be room for cost-cutting at ABN Amro in the event of a takeover. But he said it was also possible that contact between the two companies was due to ABN Amro "casting about for any options to placate" TCI and other activist shareholders.
ABN Amro said last month that it was targeting growth in Asia, Brazil and Italy, where the company acquired Banca Antonveneta last year after a lengthy struggle that eventually led to the resignation of the Bank of Italy's president.
It also said it was targeting small acquisitions in growth countries, but not major takeovers.
Chief executive Rijkman Groenink said the company intended to remain independent, but he would consider a takeover offer that offered significant value to shareholders.
For the full year 2006, ABN's net profit rose 7.7% to 4.72 billion euros ($6.13 billion), while operating profit was up 24% to 27.6 billion euros ($35.86 billion).
Barclays posted net profit of 4.571 billion pounds ($8.92 billion) in 2006, compared with 3.447 billion pounds in 2005.
Barclays reported last month that its net profit rose 33 percent in 2006 and claimed that the worst was over for its Barclaycard business, which posted a sharp fall in profit.