Germany’s largest car parts suppliers are heading for a showdown after it emerged that Continental’s banks want management to stop merger talks with rival Schaeffler and to dilute the controlling shareholder through a capital raising.

A steering committee of four leading Conti banks had called on Karl-Thomas Neumann, Conti’s chief executive, to aim for a capital boost as a precondition for a refinancing of the car parts supplier’s large debt, said people close to the banks.