BoA Bidding for Barclays?

Rumors of a pending takeover bid of Barclays by Bank of America have been flying thick and fast in the financial world, leading to frenzied climb in Barclays share prices. At the end of day’s trading, Barclays shares were valued at $59.42, a jump of $3.53 or 3.3 percent. The impact of this news has seen Barclays shares jump by over six percent in the last two days alone, valuing the bank now at $94.1 billion.

There are many different views making rounds at this point of time. The finance community has been split into two, some predicting that the merger was in the offing, and others not too sure if that was indeed the case. The situation is intriguing, to say the least.

One strong indicator about the unlikelihood of a deal being around the corner is the selling of shares by the Chairman of Barclays, Matt Barrett, who is on his way out after a seven-year term with the bank (as CEO till 2004, and then onwards as Chairman). Barrett apparently exercised his share options to sell 2.3 million of his shares for £6.3 million, something he would not have been able to do if the deal was actually going through. According to Maughan, the combination of the sale of shares by Barrett and US regulations (according to US regulations Bank of America would have to recapitalize Barclays balance sheet at a mammoth $40 billion) seemed a potential deal-killer.

On the other hand, there is a segment within the finance community who think a deal is in the air. A research note from Merrill Lynch suggested a deal was in the offing, while there were people like Simon Maughan, an analyst at Blue Oak Capital, who think otherwise. Another strong pointer to such an eventuality is the replacement for Barrett, Marcus Agius. In fact, one of the key indicators that started the rumors going was the appointment of Marcus Agius, an investment banking veteran who came to be noticed working on a series of multimillion-pound deals of this nature, mostly M&As.

While Barclays has chosen to remain tight-lipped about the whole situation, Bank of America CEO Kenneth Lewis has been vocal about the banks vision of Europe being the place to expand outside the US. He has, however, not mentioned anything about a bid for Barclays. The Merrill Lynch research note mentioned earlier shed light on the scope of acquisition if the deal were to materialize.

Bank of America would get quite a big chunk of the pie - a large international presence in fixed income-oriented investment banking, the leading UK credit card business to merge with its own British cards unit, a big UK retail and commercial bank with opportunities for efficiency improvement, and the leading global indexed asset-management and exchange-traded funds business.