In the wake of Lloyds Bank's pounds 1.8bn bid for Cheltenham & Gloucester, it has emerged that Sandy Leach, chief executive of Allied Dunbar, a BAT subsidiary, recently told an internal conference that the company wanted to buy a building society for around pounds 2bn. No timescale was specified.
Yet on Friday, Martin Broughton, BAT's chief executive, was scornful of the price Lloyds was paying. He said: 'We looked at C&G, and at pounds 1.8bn good luck to them.' He indicated that BAT would not make a counter-bid for C&G.
That implies BAT was hoping to buy a much bigger building society for the pounds 2bn. The next two bigger than C&G are Leeds Permanent and Alliance & Leicester, but they are too close in size to make sense in the light of Mr Broughton's remarks.
The biggest after them is the Woolwich, which reaffirmed last week that it is determined to retain mutual status. That would not be compatible with takeover by a quoted company.
Then comes Nationwide, roughly twice C&G's size. The only other possibility is the Halifax, the biggest, which like the Woolwich seems determined to stay mutual. A BAT spokesman said yesterday: 'If BAT were to buy a building society at some stage in the future, it would be a big one.'
Tim Melville-Ross, Nationwide's chief executive, was unavailable for comment, but is known to want legislative restraints on building societies relaxed so that they can compete with banks more freely.
Mr Broughton added: 'Building societies have the right profile for us. Personal financial services are where we see our major financial strengths. There are building society opportunities we have declined, but there are others around. As we are the largest UK-based insurance group, owning Allied Dunbar and Eagle Star, adding a building society could be very attractive.'
He was speaking as speculation was growing that, if Lloyds overcomes the legal and regulatory barriers to buying C&G, other companies may take advantage of the precedent that deal would set.
BAT has owned Eagle Star since 1981, soon after it abandoned plans to bid for Royal Bank of Scotland. However, it has done little to exploit its presence in financial services since then, apart from buying Allied Dunbar and Farmers, the Californian insurance company.
But BAT recently recruited George Greener from Mars, the US confectioner, to head BAT Financial Services. And last week it added Paul Manduca, the deputy group managing director of the City- based Henderson Administration Group, to be chief executive of Threadneedle Asset Management, which will be BAT's investment arm.
One possibility is that BAT might float all or part of its financial services arm - to enable it to overcome Bank of England reservations about industrial companies buying banks. Mr Broughton said: 'We are a long way away from that, but I am not saying it might not happen at some stage.'
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