Barclays in £80bn merger talks

Banking giant Barclays is in exclusive talks with Dutch bank ABN Amro about a potential £80bn (€117bn) merger.

The bank issued a statement yesterday to confirm discussions were taking place with ABN Amro, but stressed that they were still only at an early stage.

The merger would help Barclays overtake Royal Bank of Scotland to become the UK’s second largest bank and create a rival to the world’s two largest banks, Citigroup and HSBC.

The bank’s statement said: “Further to its announcement this morning, Barclays PLC confirms that it is in exclusive preliminary discussions with ABN Amro concerning a potential combination of the two organisations which will create value for both sets of shareholders.

“These discussions are the result of careful consideration to create a highly complementary partnership. The talks are at an early and exploratory stage and there can be no certainty that they will lead to a transaction.

“A further announcement will be made in due course.”

If agreed, the tie-up would create a bank with 47 million customers and more than 220,000 staff worldwide.

Barclays’ shares dropped nearly 1% yesterday as some analysts expressed doubts about how much it might be forced to pay for its Dutch counterpart.

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.”

ABN Amro, which is listed on the Amsterdam stock exchange, saw its share price soar more than 9% on news of the potential merger, valuing the firm at more than £39.6bn (€58bn).

The two banks first 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 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.

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 (€10.5bn) in February as the ’big five’ UK banks posted profits of nearly £40bn (€58.6bn) over the last month. ABN Amro produced pre-tax profits of €4.78bn in 2006, below consensus forecasts.