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Friday, 3 November, 2000, 12:41 GMT
Bank merger wave
The move by the Abbey National to take over the Bank of Scotland is just the latest in a wave of mergers that has been sweeping the financial services sector in theplast year.
In August, Barclays moved to gobble up the Woolwich - and it seemed to many analysts at the time that the middle market banks would be among the most vulnerable.
The Abbey move, if successful, will make it a predator rather than a prey.
And it will also turn the tables on the Bank of Scotland, which was one of the banks that began the current merger wave when it made a bold bid a year ago to take over its much larger rival, the NatWest Bank, one of the "big four" clearing banks.
The NatWest Bank was eventually snapped up in a hostile takeover by the Royal Bank of Scotland in a three way battle - putting the Bank of Scotland itself into play.
And it is not just banks that are being taken over. The Abbey National took over the Scottish Provident, a mutual insurance company, and Lloyds TSB acquired Scottish Widows last year.
As the announcements flow thick and fast, other UK banks will be polishing their defence strategies - or putting on their best frocks and doing their best to catch the eye of a wealthy suitor.
The initial impetus for the link-ups has been the weak performance of bank shares in the UK in the past year.
Then there is the impact of new technology which has allowed online newcomers such as Egg, and Smile, to offer rates which threaten to reduce existing High Street banks' profit margins.
There is also the general increase in competition driving mergers across Europe - shares in companies ranging from the Alliance and Leicester to Germany's Commerzbank have been named as cross-border targets.
The urge to merge has been driven by the need for sheer size to be an effective player in the global market.
The financial sector, more than any other industry, is affected by the growth of e-commerce - its product, money, is one that can be moved across borders electronically.
French banks led the way when Banque Nationale de Paris won a majority stake in a rival bank, Paribas.
The German banking sector is rife with rumours - and a number of attempts - at consolidation, although the biggest deal to take - the attempt to merge Deutsche Bank and Dresdner - collapsed over disagreements on strategy.
Lloyds sizes up prey
In the UK and in Europe Lloyds TSB is seen as one of the biggest predators.
The most successful British bank has run out of room to grow in its home market and is thought to be considering continental as well as UK acquisitions.
The bank has often said that its purchase of mutual insurer Scottish Widows was just the beginning of a spending spree, which could also include a UK bank.
During the NatWest takeover battle it was even tipped to be looking to buy the Royal Bank of Scotland, and even now it may intervene to top the Abbey National's bid.
In recent months attention and speculation switched to the fate of former building societies such as Halifax, Alliance & Leicester and Northern Rock.
All are facing increasing competition in savings and mortgages, which has left them open to bid speculation.
Halifax's fall from grace has been spectacular. On its first day of trading on 2 June 1997, its shares were trading at 734.5p. Having risen to a highs of over around 900p, they are about 580p.
Banks such as Alliance and Leicester and Halifax may be "bitesize" - to quote one City analyst - for European banks. But would they want to buy them?
Likely foreign buyers would be Spain's BSCH, Germany's Deutsche Bank and Dresdner Bank, or Dutch group ING, which bought UK investment bank Barings.
Even Citigroup and Chase of the US may look to buy a UK bank. But one analyst questioned how attractive the relatively mature UK market is for European banks.
"It is a highly competitive market already. Gaining a foothold can now be achieved without owning a traditional bank or building society," one said.
He added: "Internet or telephone banking do not require you to have a physical presence. There are certainly better opportunities within Europe, which has seen less consolidation."
Others agree that large cross-border mergers are still some distance away.
"Cross-border mergers are unlikely to be quite a major event for some time. There may be one or two. There is going to be a lot more domestic consolidation first," said Constantine Psaltis, partner at the Mitchell Madison consultancy.
11 Aug 00 | Business
Barclays buys rival Woolwich
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The insatiable merger appetite
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NatWest merger's mixed fortunes
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