LBBW, the German public-sector bank, has agreed to buy Sachsen LB, bailing its smaller peer out of its exposure to volatile credit markets in a deal that could spark consolidation in the country’s fragmented banking industry.

Landesbank Baden-Württemberg, based in Stuttgart, said on Sunday that it would pay €250m ($342m) as an “immediate measure” for its Leipzig-based rival. The final price – which the state of Saxony said would be settled at the end of the year – remained unclear, but could be €300m-€800m, according to LBBW’s state owners.