Acquisitions: Could UK banks be next?
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Acquisitions: Could UK banks be next?

With valuation problems worsening, one US bank CFO thinks the major UK banks are becoming more appealing

Last month, when Royal Bank of Scotland announced that it was leading a 10% strategic investment in Bank of China for $3.1 billion, the focus was on what UK banks were acquiring overseas.

However, as one CFO of a major US bank points out, UK banks look like increasingly attractive acquisition targets themselves. "There could be an opportunity for some transatlantic acquisitions into the UK," he says. "Where Barclays and Royal Bank of Scotland are trading right now makes them look very cheap."

No matter what they acquire or how much they expand internationally, Barclays and RBS are caught in a valuation rut. "HSBC and Standard Chartered have managed to convince shareholders that they are international institutions and trade in line with the US banks, but the other UK banks have never made that transition, despite their increased investment overseas," says Simon Maughan, head of European bank research at Dresdner Kleinwort Wasserstein. "It also makes it rather expensive for them to make acquisitions themselves."

Who Can Acquire a UK Bank?
RBS Barclays HBOS Lloyds/TSB
Citigroup Yes Yes Yes Yes
Bank of America No Yes Yes Yes
JPM Chase No (PM) Yes Yes Yes
UBS No (PM) Yes Yes Yes
Wells Fargo No (PM) No (PM) Yes Yes
BNP No No (PM) No (PM) Yes
BBVA No No (PM) No (PM) No (PM)
Deutsche No No No (PM) No (PM)
(PM) = Potential Merger
Source: Merrill Lynch

The question is, when the biggest UK banks have such large market caps, which banks are big enough to buy them? In a March report, Merrill Lynch UK bank analyst John-Paul Crutchley pointed out that although there were more potential merger candidates around, globally there are only three credible candidates that could be outright buyers of large UK banks – Citigroup, Bank of America and JPMorgan [see table].

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