Barclays to look at merger deals

Departure of Taylor puts bank in play, according to analysts

BARCLAYS will entertain takeover bids and merger propositions in the wake of the departure of chief executive Martin Taylor, according to the bank's senior management.

Pressed about Barclays' posture toward a deal, chairman- designate Sir Peter Middleton said there were no "hot prospects". However. he added: "A lot of this is opportunistic. That's just the way the world is now."

Senior non-executive director Sir Nigel Mobbs said: "One should not be specific, but there is clear evidence that all financial institutions are going through a period of reappraisal."

Analysts cautioned that Barclays directors have a duty to remain open- minded about deals, so not too much should be read into such statements. But Goldman Sachs bank analyst David Townshend said: "Suddenly, Barclays is in play. Particularly so because of the vacuum at the top."

A straw poll of analysts identified the Pru and Halifax as two potential merger partners and Lloyds-TSB as a potential bidder. Barclays shares closed down 8 per cent on Friday at pounds 13.74 in reaction to the news of Mr Taylor's departure. This valued the bank at pounds 20.6bn. The market capitalisation of Lloyds TSB is pounds 47.2bn - sufficient, analysts said, to mount a bid.

Consolidation of the banking sector has been held up by smoke signals from the Government that a big bank merger would be anti-competitive. The threat of a referral to the Monopolies and Mergers Commission undermined talk of a deal between Barclays and National Westminster Bank earlier in the year, when Mr Taylor was rumoured to be pursuing such a combination.

But City analysts speculate that the Department of Trade and Industry has relaxed its views about bank mergers since Peter Mandelson took over as Secretary of State from Margaret Beckett. "The Government has had time to digest the Citi-Travelers merger and Nationsbank's takeover of Bank of America in the US," said one analyst. "It is now watching Deutsche Bank move in on Bankers Trust."

The Government is worried that a consolidation of high- street banks could raise the cost of capital for small businesses dependent on local bank branches for financing. But it is also concerned to make sure that the UK financial services industry remains competitive against foreign rivals. Barclays is the fifth-biggest bank in Europe in terms of market capitalisation, after Lloyds TSB, HSBC Holdings, UBS and Credit Suisse.

Barclays will spend the next few weeks regrouping. Sir Peter has been named acting chief executive while a permanent replacement for Mr Taylor is found. He will then step up and take over as chairman when Andrew Buxton retires.

Once it sorts out its management problems, however, it still faces a strategic quandary. In addition to reviewing deal options, it can withdraw from international banking and concentrate on UK banking, or it can search for new ways to be both a UK and international bank.

Barclays has strong retail, corporate banking, and fund management businesses, Sir Peter said. It has an investment banking presence through Barclays Capital.

"It's a question of where Barclays Capital fits in," he said.