A merger or asset management deal could be on the cards between the Franco-Belgian banking group Dexia and Italian bank Sanpaolo. The two have confirmed that they are talking, but have been very coy about the subject matter. They will say only that the discussions are “preliminary contacts to consider possible developments of common interest.” A full merger of the two would create Europe’s fourth largest bank with market value in excess of 33 billion euros.Dexia specialises in public finance loans, it is the world’s biggest lender to local governments, while Sanpaolo is a more traditional bank with both retail and capital markets operations. After Spain’s Banco Santander Central Hispano was successful in taking control of Britain’s Abbey National, more cross-national deals have been anticipated. Santander also has a minority stake in Sanpaolo. Analysts said a full merger would be difficult given the different nature of the two banks’ retail businesses and possible regulatory hurdles. There was speculation in the banking world that it was more likely the talks would lead to Dexia buying Sanpaolo’s fund management division, Fideuram, but the Italians denied that.