Barclays shares surge on takeover speculation

LONDON - Speculation that Barclays could be bought by an American rival have seen its shares surge.

But investors and analysts are warning there are big obstacles to any deal.

The shares of Britain's No 3 bank have outperformed the FTSE British banks index by about 14 per cent in the past six months.

It could be attractive to United States banks, which are restricted at home, due to its fast-growing investment banking and fund management businesses in Europe.

It has been linked with Wells Fargo, but Bank of America is often cited as a bidder. It is close to the regulatory 10 per cent limit on US deposits after buying Fleet Boston last year for US$48 billion ($69 billion).

Carter McLelland, chairman of Bank of America's securities business, said in November that buying in Europe could help it expand in European bonds and retail banking.

The minimal overlap between businesses is a significant barrier to cross-border merges, while investors are often sceptical of claims about boosting revenue from acquisitions. But Barclays could give Bank of America efficiency gains.

Barclays' biggest profit driver is the debt-focused Barclays Capital investment bank, which accounted for 40 per cent of profit growth. Other fast-growing units are wealth management and the US-based Barclays Global Investors fund manager. Barclays is also Britain's biggest credit card lender.

Before any takeover premium, Barclays, valued at about US$72 billion, would be the world's biggest bank acquisition and the eighth-biggest takeover. But it may not be a willing seller.

Chief executive John Varley has said the 315-year-old bank has enough growth options to satisfy investors without selling.

Varley has mapped out a plan to expand Barclays' global businesses and has set ambitious targets for reviving the sluggish British unit.

Barclays may be looking for a merger of equals and could even use its increased share price to fund an acquisition in the US, confounding investors who have bought in the hope of the bank being acquired.

With Barclays' shares rising and the dollar low, that prospect grew, said WestLB Panmure analyst James Hamilton.

Barclays dipped a toe back into US consumer lending last year when it bought credit card business Juniper.

- REUTERS