Comment: Woolwich gets its share quote; but for how long?

`With a heavy bias to the booming South-east housing market, and the affluent customer base that comes with it, Woolwich is likely to prove irresistible to its over-capitalised peers'
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The Independent Online
There was never much doubt Woolwich would make a sparkling stock market debut, notwithstanding last year's spot of bother with the landscape gardeners. Not only is the bank a must-buy for tracker funds, its new shareholders were looking forward to a buyback before they had even received their certificates and it looks a dead cert to be an early victim of the consolidation sweeping the financial services sector.

With a heavy bias to the booming South-east housing market, and the affluent customer base that comes with it, Woolwich is likely to prove irresistible to its over-capitalised peers. Both the Scottish banks are desperate to increase their exposure south of the border and Halifax has pounds 3bn burning a hole in its pocket - it is not a question of whether, but when and who. In the brave new world of multi-product bancassurers Woolwich is hopelessly focused on its traditional lending and borrowing businesses. It has tried to add a few unit trust and PEP bells and whistles, but it knows it can't compete with its bigger rivals.

How much of that is reflected in yesterday's higher-than-expected first- day closing price is anyone's guess in a sector where the valuation goal posts appear to shift daily. Those who remember banks trading on five times earnings and offering yields of over 8 per cent will be horrified by present ratings.

At yesterday's close, Woolwich's shares stood on a prospective price/earnings ratio of almost 20 and yielded only a little more than 3 per cent. Compared to the small discount to net assets that banks have traditionally traded on, Woolwich's three times book value looks ambitious.

No-one's going to care too much about all that, however, if an auction develops for Woolwich's plum customer list. While the terms of the 1997 Building Societies Act appear at first sight to rule out a bid for five years, what they actually do is ensure a high, agreed take-out price. With any potential predator needing to persuade 75 per cent of the bank's shareholders to waive the takeover protection provisions, a serious bid is unlikely to be pitched at less than 450p a share. Valuations may have lost touch with reality but the ride is probably not over yet.

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