A&L, Woolwich go well together

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The Independent Online
A&L, Woolwich go well together

WHAT TO make of the latest round of merger rumours in the UK banking sector? Alliance & Leicester is reported to be fluttering its eyelids at the Woolwich, a fellow former mutual. And, on the face of it at least, a tie-up between the two has its attractions.

Competition in the mortgage market is cut-throat. A link-up would generate some pounds 200m of cost savings and provide some breathing space on margins. A deal would also provide a neat answer to the tricky question of excess capital.

Both A&L and the Woolwich, like all the former mutuals, have more money sloshing about than they know what to with. If either were to make an acquisition on their own, they would lose their protected status - leaving them vulnerable to take-over - and would be unlikely to be able to afford a business of any real size. If the two join forces, on the other hand, they would lose one protected status to gain another - sufficient market share to make a bid from another mortgage provider impossible for competition reasons. They would also have sufficient financial muscle both to fend off unwanted bid approaches and to fund a reasonably-sized acquisition.

But this is all besides the point. The real question is could the two agree on who gets the top jobs. This, as we know, has come to be the deciding factor, the make or break issue, even for the most commercially compelling of mergers. The answer, it seems, is probably not. According to those in the know, neither John Stewart - Woolwich's young-ish, fairly democratic, chief executive - nor Peter White - Alliance & Leicester's old-ish, rather autocratic, chief executive - would happily step aside.

If any deal between A&L and the Woolwich is to work, it would have to be a friendly merger, a merger of equals. In this case we have two chief executives both equally intent on setting the agenda, plus a wider clash of both culture and strategic direction.

On paper, the deal doesn't look too bad. In practice, though, we may be looking at Glaxo/SmithKline Beecham Mark 2. A tie-up between the two would be lucky to even make it off the drawing board. So far, all the talk of major consolidation in the UK banking market has come to nought. Since friendly mergers seem to be so difficult to cement, it may mean that if market expectations are going to be satisfied, someone will eventually have to go hostile.

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