Barclays set to clarify merger speculation

Banking giant Barclays is set to reveal its hand amid speculation over a potential £80bn (€117bn) merger with Dutch bank ABN Amro today.

The UK’s third biggest bank told the stock exchange it was preparing to make an announcement “clarifying the position” before tomorrow following weekend reports over the potential tie-up with ABN Amro.

If agreed, the deal would help Barclays overtake Royal Bank of Scotland to become the UK’s second largest bank and rival the world’s two largest banks, Citigroup and HSBC.

ABN Amro’s share price soared more than 9% today, valuing the firm at more than £39bn (€57bn).

Panmure Gordon banking analyst Sandy Chen said: “Although we do think cost efficiency improvements could drive value creation in a merged group, a bid-fuelled jump in ABN’s share price could sap the potential for value creation.”

The tie-up between the two firms would create a bank with 47 million customers and more than 220,000 staff.

The two banks held serious discussions over a potential tie-up two years ago, but failed to agree a deal after resistance from ABN Amro chairman Rijkman Groenink.

But pressure on Mr Groenink has grown as the Dutch bank has come under public attack from two hedge funds, the Children’s Investment Fund and Toscafund, over the bank’s underperforming share price. The funds have demanded a sale or break-up of the business.

Barclays wants to benefit from the Dutch bank’s presence in markets including Brazil and Asia, as well as ABN Amro’s US and Italian based banking business, Antonveneta, which the group bought in 2005.

Mr Chen added: “Broadly speaking, the two groups complement each other strategically, both in terms of geographical distribution and business mix.”

Barclays posted pre-tax profits up by more than a third to £7.14bn (€10.4bn) in February as the ’big five’ UK banks posted profits of nearly £40bn (€58.5bn) over the last month.

ABN Amro produced pre-tax profits of €4.78bn in 2006, below consensus forecasts.