Speculators target US banks

Speculators moved in on the shares in the remaining independent US investment banks yesterday as attention focused on which would be the next to fall in the rapid consolidation of the financial sectors in the US and Europe. Lea Paterson assesses the runners and riders in the takeover chase.

Pressure mounted on Europe's leading financial groups yesterday to move quickly on the handful of independent investment banks left on Wall Street following this week's $9bn (pounds 5.5bn) takeover of Salomon by Travelers. Consolidation has taken place much more quickly than many analysts expected, leaving Europe's biggest players scared of being unable to compete with the so-called bulge bracket of giant US firms.

The spotlight turned yesterday on to banks such as SBC and Deutsche Bank, which analysts feel need to acquire a US presence if they are to become global players. "The Salomon deal has certainly added to pressure on the management of some European banks to get an adequate presence in the US," said Olaf Conrad, banking analyst at Morgan Stanley.

The most likely targets for takeover by a European bank are thought to be Lehman Brothers, Paine Webber and Donaldson Lufkin & Jenrette, all of which saw their shares jump in morning trading in New York. Paine Webber's shares hit an all time high of $45916 in New York early Thursday morning, before falling back to $4538 after president Joseph Grano said the firm was not talking to any potential suitor. Trade in Salomon shares was quiet yesterday, following its $434 rise to $76116 by the close of play on Wednesday.

Bankers Trust remains linked with Credit Suisse, despite the Swiss bank's recent acquisition of the Winterthur insurance group. Attention has also focused on UBS, which is perceived to have struggled to build up an asset management business in the US.

The planned merger of Salomon Brothers with Travelers' Smith Barney brokerage has been broadly welcomed, even though some analysts are sceptical about the realisable benefits of forcing together the different wholesale and retail cultures of the two banks. The jury remains out on the success of the similar tie-up last year between Morgan Stanley's institutional franchise and the retail stockbroking business of Dean Witter.

The blueprint for this kind of merger is Merrill Lynch, which has had an integrated retail distribution division for some years. Merrill, the leader in new debt and equity issues so far this year, said yesterday that the Salomon/Smith Barney merger "confirmed the wisdom of our own long term strategy". New debt and equity issued by Salomons and Smith Barney this year amounts to $118bn, $20bn behind Merrill Lynch.

Job losses in the UK, where Smith Barney is a relatively minor player, are unlikely to be anywhere near the number in the US.