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The BBC's Sarah Boxhall reports
"They can't become targets until 5 years after they became a bank"
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Friday, 11 August, 2000, 09:04 GMT 10:04 UK
Banks braced for more mergers

Lloyds TSB is expected to go on the acquisition trail
The Barclays/Woolwich link-up has heightened the takeover speculation which has circled the banking sector in the UK for most of this year.

Even as the ink dries on the deal, 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 Barclays deal comes six months after the NatWest Bank was taken over, against its wishes, by the Royal Bank of Scotland in a three way battle.

It seems that the analysis at the time - that it would trigger a spate of mergers and takeovers in the banking sector - is being proved spot on.

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 Bank of Scotland to Germany's Commerzbank have been named as cross-border targets.

Why merge?

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.

Abbey National has long been a takeover target
Increasingly competitive markets mean that chief executives are feeling pressure from shareholders and boards to focus on mergers and acquisitions in an effort to improve returns, according to Daniel Dickenson, head of European mergers & acquisitions at Merrill Lynch.

French banks led the way last year 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.

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.

ING Barings
Dutch bank ING Barings is keen to find other partners

"I think in terms of predators, the likes of Lloyds must be top of the list, due to financial strength and appetite for acquisitions," said Ian Hodges, analyst at Barclays Stockbrokers.

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.

Many also felt that the Bank of Scotland, bruised from losing the takeover battle may have then itself fallen prey to a takeover.

In recent months attention and speculation switched to the fate of former building societies such as Woolwich, 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 520p.

European predators?

Banks such as Abbey National 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 - who had also sought to merge with one another.

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.

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See also:

30 Dec 99 | Business
The insatiable merger appetite
03 Jan 00 | Business
Lloyds TSB goes European
11 Feb 00 | Business
Banking in the doldrums
07 Feb 00 | The Company File
Banking on size to compete
11 Feb 00 | Business
NatWest merger's mixed fortunes
15 Nov 99 | Business
Why banks love online customers
05 Sep 99 | The Company File
Banks shop for life companies
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