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Speculation is mounting that Bank of America is about to make a bid for UK bank Barclays, even though a sale of shares by Barclays' outgoing chairman signalled no approach had been made.
Barclays Chairman Matt Barrett said on Friday he exercised share options and sold 2.3 million shares the day before, netting 6.5 million pounds. He would not be able to do so if an approach had been made, and analysts said the move also indicated he thought a bid was unlikely.
But investors shrugged off the transaction after a leading broker said there was strong merit to a takeover.
"We believe Bank of America is very interested in acquiring Barclays," Merrill Lynch said in a research note.
Both Barclays and Bank of America declined to comment.
Barclays shares closed 3.3 per cent higher at 730 pence, after hitting a new high of 741p, valuing the bank at 48 billion pounds. The shares have jumped 6 per cent in the last two days.
Bank of America shares were down about 1.6 per cent at US$51.65 in late trading on the New York Stock Exchange.
Dealers said the rally in Barclays stock gathered momentum from US investors during afternoon trading in London.
"There is enough money out there in terms of borrowing capacity for any company to buy any other company in the world," said John Orrico, portfolio manager at the Arbitrage Fund in New York.
The price move was backed up by heavy volume, with more than 108 million shares traded, almost four times the daily average.
"What we think we know is Bank of America approached the group (Barclays) in a past life about a deal," said Simon Maughan, analyst at Blue Oak Capital. "There were strong rumours they were about to execute it but a domestic deal came up and they did that instead.
"Back comes the suitor again is the story," he added.
But Maughan said the sale of shares by Barrett and US regulations that would require Bank of America to recapitalise Barclays' balance sheet -- potentially at a cost of US$40 billion (20.5 billion pounds) -- made a deal unlikely. "It doesn't prevent a deal, it just makes it unlikely," he said.
Bank of America Chief Executive Kenneth Lewis has said Europe may offer the best value for growth outside the United States, but he has also been reported as saying he was not planning any more takeovers and declined to comment on rumours that Barclays was a target.
Merrill said in its research note that buying Barclays would help Bank of America, the world's second-biggest bank by market capitalisation, achieve its goal to become a leading global commercial and investment bank.
Barclays would give Bank of America a large international presence in fixed income-oriented investment banking, the leading UK credit card business to merge with its own cards unit, a big retail and commercial bank with opportunities for efficiency improvement, and the leading global indexed asset-management and exchange-traded funds business, the note said.
Barclays shares trade at about 10 times next year's expected earnings, compared with about 11 times for the European sector, according to Reuters data.
Merrill estimated Bank of America "could pay a 25-30 per cent premium for Barclays and still make the deal modestly cash EPS accretive after merger synergies are fully achieved".
Analysts said Barclays and other banks had also been helped by bullish comments this week from Royal Bank of Scotland Plc, which said it should beat 2006 earnings expectations.
Barrett leaves Barclays at the end of this year after seven years at the helm, first as CEO and as chairman since 2004. His stock sale left him with 2,000 shares, but he also has options on another 1.6 million and the potential for another 268,000.
He is being replaced by Marcus Agius, a veteran investment banker. Agius's appointment in August stoked speculation that Barclays may be a takeover target, as he made his name working on a string of multimillion-pound M&A deals.
- REUTERS
