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An interesting little op-brief by Andrew Hill on p. 18 of today’s Financial Times. Subject: the merger talks between UK-based Barclays PLC and Dutch-based ABN Amro. It is obvious that both banks would have something to gain from positive merger discussions, particularly the struggling ABN. Just how a Barclays-ABN merger would work remains to be seen, as there have been three successful Anglo-Dutch mergers in past history (Royal Dutch Shell, Unilever, and Reed & Elsevier). However, Hill makes two points that make the current merger talks all the more interesting”

“The offer also has interesting implications for the destiny of Barclays if this deal fails – apart from the risk that, having approached the Dutch bank, Barclays may have put itself into play,” writes Mr Hill. It is interesting that Hill should mention the possibility of a failed merger discussion making Barclays more attractive to other ‘continental European partners.’ At this point the crux of the merger seems to be focused on concessions made between the listing location (Netherlands) and the main office location (England), with concerns that this agreement might not work coherently. Other suggestions have been made that, provided the merger passes, one of the banks might divest certain services such as retail banking or asset management services.

Combined with Hill’s second point of interest, I might speculate another possibility. Hill says that if the current talks fail, ‘continental European partners’ “might suddenly see a merger with Barclays as a more attractive prospect this week than it was last.” My question is, why limit these ‘partners’ to European banks? Recall if you will, early December 2006, where rumours were swirling about a potential Bank of America takeover of Barclays. After a couple of days, BofA’s Chief Executive Ken Lewis spoke to a Goldman Sachs investor conference, attempting to downplay such rumours. Ultimately, nothing came of the rumours. However, Lewis didn’t put international expansion out of the realm of possibilities for BofA to strike a deal, provided the right one came along.

Over the next couple of months following these statements however, a series of events occurred that might make a Barclays-BofA merger more feasible, in the event that the ABN Amro talks fall through.

First in January 2007, BofA decided that it would attempt to lobby the U.S. Congress to have the maximum deposit cap of 10% of national savings raised. This soon failed. Then, later on in the month, the Board of Directors approved a $14 million share buyback, creating a greater equity stake. And thirdly, Mr Lewis recently presented a plan for ‘organic growth’ within domestic markets – particularly seeking to fill-in gaps throughout the Midwest.

It has been reported than Lewis fears expansion to international markets, however 2005 saw BofA acquiring a 9% stake in China Construction Bank. The bank can no longer acquire any more domestic banks; the capital is available. Thus, I posit the possibility that if the Barclays-ABN Amro talks fall through, BofA will either seek to align interests by re-opening discussions with Barclays for a potential merger or, if the talks go through, either Barclays or ABN sells off certain divisions (such as ABN’s LaSalle Bank) to BofA. Given the events of the past couple of months, it would seem advantageous for Bank of America to seize whatever the potential outcome of the Barclays-ABM Amro discussions.

(Ed. Note: I found out after writing this column, that marketwatch.com reported a story on 20 March, that some UBS analysts predict Bank of America will not seize on any post-merger talk opportunities. Part of this is attributed to “lack of foreign ambition,” as discussed above. However, given domestic growth prospects, it would seem to me unwise for BofA to fail to capitalize on any such opportunities, else Mr Lewis should reconsider his position.)