Barclays set to reveal the sale of BZW to a foreign buyer

Staff at BZW have been summoned to an early morning meeting today to be told that the investment bank is to be sold to a continental buyer. Tom Stevenson and Lea Paterson report on a volte face by its parent, Barclays.

Barclays is expected today to announce the sale of BZW, one of the few remaining British owned investment banks, to a foreign buyer. The deal, which would be the latest move in an accelerating consolidation of the banking sector, was due to be unveiled at a 7.30am meeting to which all staff have been called.

Market speculation that Commerzbank and ING, the owner of Barings, were the likeliest buyers was last night understood to be wide of the mark.

In a second consecutive day of very heavy trading, Barclays shares closed at 1747p, down from the day's high of 1800p, but more than 20 per cent higher than they traded at only a month ago.

Despite the hectic dealing, Barclays said yesterday that it "was not commenting on market speculation".

The future of BZW has been the source of rumour for months following a period in which both Barclays and NatWest banks have come under fire for the performance of their investment banking arms. But speculation has intensified in recent weeks and Barclays shares have soared on hopes that it might shed its comparatively volatile investment banking earnings to focus on its core retail operation.

A disposal of BZW would, however, represent a change of heart for Barclays, which had resisted calls from its shareholders to pull out of investment banking and publicly backed the firm.

It might also prove to be an expensive change of heart. Barclays chief executive Martin Taylor hired Bill Harrison from Flemings to transform the fortunes of the underperforming investment bank on a package worth pounds 5.8m over two years and he has spent more than pounds 100m beefing up the workforce.

Throughout the process, however, it has been widely understood that Mr Taylor was less attached to BZW than Barclays chairman Andrew Buxton, who ran the division at one stage. One view had the appointment of Mr Harrison as a safe each-way bet - either he succeeded in restoring BZW's fortunes, pleasing shareholders, or he failed and face was saved because the job was beyond even a man of his ability.

In June, the increasingly feverish gossip saw prey turn predator, when Barclays was named as a possible bidder for rival NatWest. Barclays/NatWest speculation died down in July after it was revealed that NatWest and insurance group Prudential had held merger talks.

Rumours surrounding the future of BZW abated in the summer as it started to succeed in a bid to distance itself from the problems at NatWest. BZW announced much improved first half results, despite revealing a pounds 20m "black hole" in its trading operations. Martin Taylor, chief executive of Barclays, said at the time that BZW was "recovering nicely".

Last week, however, the pressure on Barclays was reignited by the unexpected announcement by Travelers Group, owners of retail stockbrokers Smith Barney, that it planned to take over US investment bank Salomon Brothers. Hot on the heels of a similar deal between retail stockbrokers Dean Witter and US investment bank Morgan Stanley, it suggested the consolidation of the sector was gaining an unstoppable momentum.

The Travelers/Salomons deal put pressure on European banks to follow suit or risk being squeezed out by the growing power of the so-called bulge bracket of big American firms like Merrill Lynch and Goldman Sachs. Europeans such as Deutsche Bank, UBS and Commerzbank were named as potential bidders for a string of targets, including BZW.

A takeover of BZW would come just as the investment bank appeared to have regained its self-confidence. It recently completed a move from shabby offices in the City to brand new marble clad accommodation in Canary Wharf in London.

It also seemed to have reversed a dramatic outflow of staff that had seen a constant flow of analysts to other firms.

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