Buyers queue up for BZW

The demise of Barclays' investment arm marks the end of Britain's attempts to dominate world stage

The break-up of BZW is the final nail in the coffin of British ambitions to own a global invest- ment banking business that can compete on a world stage - especially against the might of the Americans.

The dissolution of Barclays Bank's merchant banking business, created 10 years ago through a combination of three firms in the Big Bang, is likely to see a foreign buyer purchase BZW's corporate finance and equities businesses. UK buyers are almost certainly ruled out.

"Most likely it will be a European or possibly American buyer, not a UK buyer," said Simon Price, an analyst at Merrill Lynch.

Martin Taylor, Barclays' chief executive, said talks with potential purchasers have yet to begin, increasing the uncertainty for clients and staff. The business could fetch over pounds 400m.

He may not have to wait long, however, as BZW is one of the last available routes for an entrant to gain a ready-made platform into the City, across a broad spread of activities. Commerzbank, ING, Paribas, Credit Suisse First Boston, and Travelers Group, which last week said it will buy Salomon for $9bn (pounds 5.6bn), are rumoured candidates.

For Barclays and Mr Taylor it is the end of a dream. BZW was regarded as one of the last opportunities for a British-owned investment bank to compete with global US and European institutions after National Westminster Bank split its investment banking arm, NatWest Markets, in half earlier this year.

"Taylor's pulled the plug," said Tim Clarke, an analyst at Nikko Securities. "It's the first time he's admitted a failure."

A rapidly consolidating securities industry has increased the stakes for investment banks by creating several global firms in the last three years. Mr Taylor had to decide whether to spend millions of pounds to buy another investment bank or cut back on Barclays' investment in BZW.

Following the historic link-up this year of Morgan Stanley and Dean Witter, Discover & Company and last week's Traveler's purchase of Salomon, Mr Taylor made his decision.

"It's not a question of the ability to invest, it's a question of the return on the investment and the period over which it's returned," Mr Taylor said.

Investment banks now return an average of 10 per cent a year on investment, down from 20 per cent in the 1980s. The cost of hiring new talent has made it almost prohibitively expensive for banks such as Barclays and NatWest to compete in the industry and at the same time increase shareholder value.

NatWest Markets and BZW were seen as the last real chances for British- owned banks to build competitive global investment businesses. NatWest Markets' dreams were dashed two months ago when its parent decided to spin off NatWest's equity and corporate finance business into a separate unit. A spokeswoman for NatWest Markets said the parent bank remains committed to the unit after the Barclays announcement.

The sale of half of BZW, if successful, will be the latest purchase of a British investment banking operation, following a series of foreign purchases in 1995.

SG Warburg Group, Britain's largest investment bank, was purchased by Swiss Bank Corporation and is now SBC Warburg. Kleinwort Benson Group was bought by Dresdner Bank and is now Dresdner Kleinwort Benson. Smith New Court Securities was bought by Merrill Lynch.

In a league table of mergers advisers in the UK for the first nine months of this year, released yesterday, BZW was ranked 8th while NatWest was ranked 18th.

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