City sees Barclays/L&G merger as a logical step

A merger between Barclays Bank and Legal & General to form the biggest bancassurance group in the UK would be welcomed in the City. However, as Andrew Verity and Lea Paterson discover, any expansionary acquisition by Barclays would come at a hefty price.

Both Barclays and Legal & General yesterday declined to comment on reports suggesting that a pounds 6bn deal was in the offing, dismissing it as market rumour.

City analysts, though, think differently and claim that such a deal would make perfect logical sense for Barclays, and possibly for other banks that want to penetrate the market for life assurance and pensions. Analysts believe that takeovers are a way of overcoming slow organic growth in life assurance and pensions markets.

Barclays is known to be looking to buy into the life insurance sector as one of several options for expansion by acquisition. The recent announcement that a large part of BZW, its investment bank, is being sold has heightened speculation of a takeover bid.

Lloyds TSB, one of Barclays' main rivals in the high street, has also announced its interest in buying a life insurance group if it would add value to the bank's operations. Lloyds has since been linked with Norwich Union, and separate takeover talks have also taken place between NatWest and Prudential.

The takeover activity stems from the desire of high street banks to move away from the low-margin business of taking deposits to selling more profitable savings and investment products. For the UK clearing banks, income from traditional sources such as loans and overdrafts has been slowing for some time.

But analysts say sales by high street banks of own-brand life insurance and pensions products have slowed to a stop following the successful foray into the business eight years ago. Figures from the Association of British Insurers show that banks' share of the life and pensions market, which grew to 12 per cent by 1994, has now hit a wall. In 1995 and 1996, the share slipped to 11 per cent.

Roman Cizdyn, insurance analyst at Merrill Lynch, said: "Organic growth hasn't worked. The figures showing sales of life insurance and pensions are very, very disappointing for the bancassurers."

Legal & General is already valued at pounds 6bn on its 499p share price which, analysts claim, is well below the level that Barclays would have to pay. They reckon the bank would have to offer an expensive, and possibly unjustifiable, premium of around 20 per cent.

At UBS, Chris Hitchings, an analyst, said: "In principle it's the right thing to do. But life insurance is about brand and distribution. Barclays have the distribution already. And to a retail investor, Barclays is just as powerful a name as Legal & General, so it's hard to see what value would be added."

James Dean, Price Waterhouse insurance group partner, said: "There is a view that, in a few years' time, there will be a number of very large financial services supermarkets in this country. And no-one wants to be left behind."

Other analysts do not subscribe to the theory that there will be a rapid round of takeovers which would accelerate the consolidation process witnessed over the last two years in the life insurance sector.

That picture is now becoming blurred by the entry of newly converted building societies to the banking sector. Recent speculation has linked Halifax with the Prudential, Legal & General with Norwich Union as well as Barclays, while Northern Rock is said to be on National Westminster's shopping list.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory