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In Hunt for ABN, Barclays Risks Becoming Prey

Barclayshas put itself in the crosshairs of acquisitive banks with its bold move for Dutch rival ABN AMRO, but it would be tough for any bank to turn the tables and bid for the UK bank, analysts said.

Speculation that Bank of Americacould make a move on Barclays returned this week and several analysts have said Britain's third biggest bank has made itself vulnerable to being taken over if its discussions to buy ABN fail.

But talk that predators are poised to strike for Barclays is not new, and several observers said the threat remains slim. "Barclays management and shareholders are unlikely to agree to a price that would be acceptable to a buyer," Mark Thomas, analyst at Keefe, Bruyette & Woods, said in a research note following the latest bout of chatter. The note was titled: "Barclays a target -- I don't think so".

Mike Trippitt, analyst at Oriel Securities, also played down the threat to Barclays.

"If Barclays is disciplined and walks away at an early stage if it believes it can't secure ABN at the right price then I don't think it's vulnerable," he said. "It's only vulnerable if it starts to bid at an uneconomic price, which would impact its own share price" and thus make it cheaper to buy, he said.

There is a short list of bidders who could afford Barclays, which has a market value of $92.3 billion (47 billion pounds).

Citigrouphas been rumored as interested in the past, but on Wednesday it teamed up with Barclays as one of its advisers for the ABN talks, effectively ruling out the prospect of any hostile approach.

Regular Conversations

Barclays is in exclusive talks to buy ABN for about $80 billion, which ABN said followed "regular conversations over prior years", showing often where there is smoke there is fire.

But the potential ABN deal, which would be the biggest ever bank takeover, also shows the ambitions of Barclays management to be the drivers of consolidation, which puts a clear hurdle in the way of any move for it, analysts said.

Barclays would be attractive for a rival wanting strong investment banking and fund management franchises, a retail footprint across Europe and Africa and a big credit card arm.

That would enable Bank of America to achieve its goal to become a leading global commercial and investment bank and meant there was strong merit to the takeover talk, analysts at Merrill Lynch said last December.

Barclays shares are also attractively valued for any bidder. They trade on about 10 times this year's expected earnings, compared to an average of just over 11 times for European banks, according to Reuters data.

But its exposure to the mature UK market -- where it makes half its profits -- is likely to deter any bank seeking to accelerate growth. Banking sources said this was the main reason why Barclays is not clearer on the radar of acquisitive banks.

In addition, U.S. regulations would require Bank of America to recapitalize Barclays' balance sheet -- potentially at a cost of $40 billion, according to some analysts.

And with BarCap seen as the jewel in the Barclays crown, past investment banking deals have shown that talented staff are often poached during a change of ownership.

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