Jeremy Warner's Outlook: Barclays has a good future as an independent bank. No need to sell up to the Americans yet

Grade lambasted by former colleagues; The Pru: that old chestnut again

Much excitement among traders in banking shares yesterday after Merrill Lynch published a circular which suggested Bank of America Corp (BAC) might bid for Barclays. Indeed, Merrill's goes even further. "We believe BAC is interested in buying Barclays," the circular asserts. Well- informed or otherwise - a number of broker notes suggesting corporate activity have been remarkably on the button in recent months - there is little doubt that Barclays would fit neatly with BAC's stated ambitions.

Merrill's lists four reasons why Barclays would be attractive. Number one is the bank's large international presence through Barclays Capital in fixed income-oriented investment banking including corporate and high-yield debt, structured products, derivatives and syndicated lending.

Number two is Barclays' leading position in the domestic credit card market. BAC would also be buying into one of the UK's leading retail and commercial banks with significant scope for efficiency gains. Finally, there are the attractions of Barclays Global Investors, one of the biggest index-tracking investment managers in the world.

Yet while all these things do indeed make Barclays an attractive investment proposition, there is no particular reason why they should be worth more to BAC than to anyone else. There would be significant synergies to be had from crunching the two banks together, but not of an order of magnitude big enough to make the deal a complete no-brainer.

Most major overseas banks buying into Barclays would be able to achieve similar synergies. Why BAC and not Banco Bilbao Vizcaya Argentaria, the other name constantly linked in the City rumour mill with Barclays? I'm sceptical about both. Like other British banks, shares in Barclays trade at a discount to peers in America and Europe. The reason for this has never been entirely apparent, other than the obvious explanation that the London market as a whole tends to be undervalued compared with many overseas counterparts.

However, one possibility is what is sometimes referred to as regulatory risk. British retail and commercial banks are on the whole a great deal more profitable than their overseas counterparts.

This makes them potentially vulnerable to a regulatory crackdown, or, from a Government desperate for new sources of taxation, a target for a windfall profits tax. Gordon Brown, the Chancellor, has already had a number of bites at this particular cherry, ordering first a review of the banking sector by the former telecoms regulator, Don Cruickshank, and then eventually winning a Competition Commission inquiry into small business banking.

As yet, however, he's not tried to tap the banks through any kind of windfall profits tax. In a recent speech to the Bankers Association, Ed Balls, the City minister, and still very much the Chancellor's right-hand man, suggested that it was perfectly reasonable for the banks to grow fat in the good times so that they would have sufficient in reserves to see them through the bad ones. Had he been in the pay of the banks themselves, Mr Balls could not have expressed this classic defence of banking profits more eloquently.

This should not, of course, be taken as an assurance that there will be no windfall profits tax. By closing tax loopholes, the Chancellor has already managed significantly to increase his tax take from the banking sector. Though he talks the merits of tax competition in Europe, he's vigilant in his efforts to block any tax leakage from the banking system. Even so, the idea of swingeing new taxes on the banks can in all probability safely be discounted. He's not about to tax such a big employer out of existence. All the same, the stock market remains alert to the possibility.

Would BAC or others be prepared to take that risk? One thing that is often forgotten about banks is that it is virtually impossible to take them over on an unagreed basis. It did happen with Royal Bank of Scotland's assault on NatWest, but this was one British bank taking over another. In such circumstances, regulators were happy to let events play their course. They are unlikely to be so agnostic in the event of a hostile bid by an overseas bank. My own understanding is that there has so far been no attempt by BAC or anyone else to reach agreed merger terms with the Barclays board.

The City veteran Marcus Agius joins Barclays as chairman on January 1, yet it would be silly to see his background in M&A and his recent success in selling BAA to the Spanish for a bumper price as a harbinger of things to come at Barclays. He's not been appointed to sell the bank to the highest bidder. Rather, it is to take the bank on to the next level of global expansion, a strategy so far pursued through well-chosen bolt-on acquisitions. A deal with one of the big state banks in India is highly likely when the banking sector is opened up to newcomers three years hence.

In the meantime, there's still plenty of scope for continued efficiency improvements in the UK bank. Barclays has an excellent future as an independent bank. Shareholders are unlikely to give this up for anything other than a significant premium. It is not clear that BAC would be prepared to pay what it takes.

Grade lambasted by former colleagues

Michael Grade has been getting a rough press from some of his former colleagues at the BBC for jumping ship and joining the competition. John Simpson, the Beeb's veteran world affairs editor, has depicted him as a money-grabbing media luvvie who never stays in any job long enough to be found out.

I hold no particular torch for Mr Grade, but this seems to me to do him an injustice. Perhaps Mr Simpson has forgotten, but the BBC was in a state of profound crisis when Mr Grade took over as chairman in the wake of the dodgy-dossier fiasco. Mr Grade steadied the ship, restored morale and purpose, helped put in place the new structure of trustees and non-executive directors, began the process of much-needed modernisation and in all probability has saved the licence fee for the next 10 years.

Possibly someone else more in tune with the BBC's mollycoddled traditions would have been equally capable of achieving these things, but they are no small an achievement none the less. His job at the BBC is now complete. There is not much of a position in the new structure for the chairman in any case. So it is perfectly reasonable for him to want to move on. The challenges are quite different, obviously, but there are similarities between the situation ITV finds itself in today, and the BBC when Mr Grade joined two and a half years ago.

Like the BBC back then, ITV has lost its way. On the evidence, Mr Grade is better qualified than most with the map and compass.

The Pru: that old chestnut again

The story that Prudential is about to flog off its UK life operation refuses to die. The latest purveyor of this canard is JP Morgan Cazenove, which this week published a circular suggesting that this is precisely the course settled on by the review being conducted by Nick Prettejohn, head of the UK operation. In fact nothing could be further from the truth.

The Pru without its UK business would be like a neutered lion - a quite unthinkable proposition that would doom this once- mighty brand to oblivion.

The whole idea is just wishful thinking by acquisitive rivals such as Resolution. An uncharitable thought, no doubt, but the fact that Cazenove is broker to Aviva, which tried unsuccessfully to bid for Prudential a little while back, and was also up until that point broker to Prudential, when it was fired, can surely have had nothing to do with this latest missive.

j.warner@independent.co.uk