Barclays `vulnerable' to takeover by Lloyds TSB

SPECULATION WAS mounting in the City last night that Lloyds TSB, Britain's biggest high street clearing bank, is considering a takeover approach for rival Barclays following yesterday's sudden resignation of its chief executive, Martin Taylor.

Lloyds chairman Sir Brian Pitman has been open about his wish to do a big deal and analysts warned that unless a replacement for Mr Taylor is found quickly, Barclays would find a merger approach from Lloyds extremely difficult to resist.

"This immediate uncertainty offers an opportunity to potential bidders, particularly Lloyds TSB," said Jonathan Gollins, analyst at brokers Fox- Pitt Kelton. "The competition hurdles would present some barriers but Sir Brian Pitman and Peter Ellwood [chief executive] may conclude this is too good an opportunity to miss."

Yesterday's warning that profits are likely to be nearer pounds 1.9bn than the pounds 2.2bn the City has forecast will increase shareholder pressure for a deal, analysts said. Barclays shares slumped by 114p to 1374p yesterday.

"Barclays is extremely vulnerable," said one corporate financier with close ties to all the major banks. "Remember all these deals are about getting boards to fit together. People are going to see there is a gap there."

Consolidation among Britain's banks has been held up by the fear that the Government would veto any deal between the big four clearing banks. However, City sources say that there are signs of a shift in attitude, particularly since Peter Mandelson took over from Margaret Beckett at the Department of Trade and Industry.

"Mandelson is more receptive to the argument that Britain needs a `national banking champion', particularly with Germany's Deutsche Bank poised to seal a $9bn takeover deal with America's Bankers Trust this weekend," said one analyst last night. Another said: "A bid from Lloyds TSB is on the cards."

Analysts say that while a bid from Lloyds may well be referred to the Monopolies and Mergers Commission, there are far fewer overlaps between Barclays and Lloyds than there were with Barclays and NatWest, whose merger was mooted by Mr Taylor last year.

"It is probably the case that there is a deal to be done at Barclays," said another City source. "He has used the newspapers to fly kites about what the company might do. I think the talk of a demerger may have touched a raw nerve within the organisation."

Sir Peter Middleton, who has stepped into the breach as chief executive until a permanent replacement is found, is 62 and not inclined to stay longer than necessary.

Talk within the bank was that Sir Peter also favours a quick merger with another bank as the best way of plugging the gap left by Mr Taylor's sudden decision to quit.

Sir Peter is the former chairman of BZW, whose investment banking arm was sold to Credit Suisse First Boston last year.

He was unhappy at suggestions from Mr Taylor that Barclays hive off the corporate banking operations despite pressure from shareholders for the bank to focus more clearly on retail banking.

Sir Peter was also said by insiders to have opposed Mr Taylor's suggestion that the bank attempt a merger with Halifax, the mortgage bank.

Sir Peter said yesterday that Barclays Capital was "not going to be sold off or close down". He also said that Bob Diamond, the chief executive of Barclays Capital, would be needed "whatever the scenario".