Citigroup's European steer raises hopes of rival Abbey bid

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Citigroup is prepared to buy European banks to increase international operations to as much as half of its profits.

Citigroup is prepared to buy European banks to increase international operations to as much as half of its profits.

This, and revelations that the US banking giant talked to Abbey National before its £8.2bn Santander Central Hispano takeover, will raise speculation that Citigroup could make an Abbey counter-bid.

Sir Deryck Maughan, chairman of Citigroup International, told analysts in New York on Friday that the group would need a significant European deal to meet its growth targets. "There are some large multi-product banks or groups in Europe that would profoundly change the culture and character of our company," he said.

Analysts interpreted this as a likely takeover in the UK, Germany or Spain.

The most obvious targets in the UK would be Abbey or Lloyds TSB, which reported half year profits down 7 per cent at £1.56bn on Friday.

Luqman Arnold, the Abbey chief executive, told The Independent on Sunday that the bank had been in takeover talks with two other banks before agreeing the deal with Spain's Santander.

He would not say which but they are understood to be Citigroup and BNP Paribas.

He said that when Santander said it would offer only shares in its bid for Abbey, Mr Arnold went back to other bidders to see if they would make a cash offer. Only when it was clear they would not, did Abbey accept the Santander bid.

However, this may not be the end of the battle.

"If there is someone else out there who has changed their mind and could come back with a bid, then it is our fiduciary duty to talk to them," Mr Arnold said.

None of the UK banks is expected to put in a rival offer.

HBOS and Lloyds TSB have already signalled they think there are too many competition issues.

HSBC is not believed to be interested in further expansion in the UK.

Barclays is more interested in overseas deals, while Royal Bank of Scotland already has a relationship with Santander, which has 5 per cent of RBS shares and two directors on the bank's board. It is understood that these directors, Emil Botin and Juan Rogriguez Inciarte, will continue to attend RBS board meetings despite the Abbey deal.

The RBS board is due to meet tomorrow to approve the group's interim results.

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