Outlook: RBS merger may be best for Barclays

IS BARCLAYS just accident prone, or is there something seriously wrong? The stock market took one look at the bank's latest embarrassing setback - the failure of its new chief executive to spend any more than a couple of hours in the job - and decided that probably, on balance, it didn't really matter. If the yawning management gap now apparent at the top of Barclays helps shift the log jam over banking consolidation in Britain, it might actually be rather good news, the stock market figured.

Since a merger with National Westminster Bank, or any other "English" clearer, is almost bound to be ruled out on competition grounds, the only obvious candidates would be the two Scottish banks, of which Royal Bank of Scotland must be the front runner. With a market capitalisation of little more than half that of Barclays, any such proposal would essentially have to be framed as a management buy-in, or reverse takeover. Demoralised, bemused and out to lunch though what is left of the Barclays board might be, is this something it could reasonably contemplate?

Certainly Sir George Mathewson, Royal Bank of Scotland's chief executive, is ambitious and accomplished enough to pull it off. The cost savings to be had from such a combination would plainly not be as dramatic as with an English clearer, but in retail banking and corporate lending they might still add up to several hundred million annually. Furthermore, it would provide some kind of a solution to the problem of who to lead Barclays into the next millennium.

Barclays' chances of attracting another top notch banker from the US like Mike O'Neill would seem to be slim. Even if one were available for hire at short notice, nobody likes being second choice, and in any case, nearly everyone who's any good is locked into US remuneration packages that would make any such acquisition prohibitively expensive. Executives of Mike O'Neill's ability who are also prepared to do the job at a reasonable rate, are in short supply.

Sir George would undoubtedly have been on Barclays' original shopping list for the job, but there would be no good reason for Sir George, at this relatively late stage in his career, to ditch his Edinburgh power base for the snakepit of London. If he could bring it with him, however, that might be a different matter.

The only probable alternative to Barclays' management problems would appear to be an internally groomed candidate, but even if there is someone of sufficient calibre waiting in the wings, this solution is unlikely to be as pleasing to the City as a fully fledged merger.

Martin Taylor, the previous chief executive, always believed a further big consolidation of British banking inevitable, and during his time at Barclays he made several failed attempts to bring it about. It's ironic, but by walking out in the way he did and prompting the present vacuum in leadership, Mr Taylor may end up achieving his aim afterall.

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