View From City Road: Bigger societies out of banks' reach

Most of the frenzy about building society takeovers has been directed at finding the next target so depositors can shift their money where it is most likely to attract a bonus.

But turn the argument round and ask which banks can afford to buy a society, and the picture looks quite different. The idea that the top 10 or 20 societies are about to be snapped up begins to look weak.

Hoare Govett has calculated what the clearers could afford if they used the same rule of thumb as Lloyds Bank's pounds 1.8bn bid for Cheltenham & Gloucester.

The key criterion is that Lloyds is not prepared to allow the acquisition significantly to weaken its ratio of Tier 1 (mainly equity) capital to loans.

Assuming everyone else takes the same view - and banks usually use similar benchmarks - large differences emerge in what they can afford.

Barclays, for example, could manage only pounds 970m, which would only comfortably buy Britannia, one of the smaller top 10 societies. TSB could not afford even that.

NatWest, Royal Bank of Scotland and Standard Chartered can afford only just over pounds 400m apiece, which would just about catch Birmingham Midshires, number 13.

Bank of Scotland has a measly pounds 150m available, not quite enough to buy the little Derbyshire, number 19. Abbey National and HSBC are a bit better off but Halifax, worth pounds 8bn, is out of everybody's reach.

8