The Investment Column: Easy money for merging banks

Will share prices in the UK banking sector continue to defy gravity in 1998? So it would seem, if figures from UBS analyst Mark Howdle are any guide. In his new report "The Urge to Merge", Mr Howdle provides a table which lists the consolidation potential in European banking.

Concentration - the market share of the top five banks - in the UK is calculated at 57 per cent. Return on equity is 21.6 per cent. Now turn to Germany, where concentration is 17 per cent, and return just 8.4 per cent.

Which, crudely, suggests that the fewer banks there are competing on the high street, the easier it is to make money for their shareholders. As the consolidation juggernaut rolls on across the financial sector, investing in the likes of cost-cutting Lloyds TSB and bid-target NatWest looks like a one-way bet.