SHARES in Alliance & Leicester and Bradford & Bingley both put on about 5 per cent at one stage yesterday as speculation grew that bigger UK rival Lloyds TSB had walked away from talks to take over either Dresdner or Postbank of Germany.
The bull
argument is that it means it might be more likely Lloyds would turn to less ambitious and more domestic acquisitive avenues by making a takeover bid for one of the two smaller UK banks.
It doesn't feel right to me, though. Yes, you could argue that A&L's and B&B's bombed-out share prices make them vulnerable in one sense to a bid, particularly from a big-hitter like LLoyds.
And Lloyds was linked with a Northern Rock rescue last summer before the Rock was eventually nationalised.
But both A&L and B&B are massively exposed to the mortgage market in Britain, which is currently struggling to keep its nose above the rising water.
That market has got a lot, lot tougher since Lloyds's initial interest in Northern. And Lloyds also walked away from the Tyneside bank when it could not get the terms it wanted from the Treasury and Bank of England.
Housebuilders are radically cutting back their operations, mortgage banks are imposing ever-stricter mortgage lending criteria on applicants, and people are putting off house moves while they worry if the UK is on the cusp of, or already in, a recession.
A recession means job losses and who wants to move house when they think they might lose their job?
Lloyds has a significant mortgage business, including Cheltenham & Gloucester. It obviously won't quit the arena, but I doubt if it really wants to extend its footprint currently, either.
Chief executive Eric Daniels has proved a shrewd helmsman at the bank over the past five years or so. He retrenched from its foreign operations and made the bank leaner and more resilient.
It seems doubtful to me that he would risk that legacy via Lloyds taking over one of the touted smaller UK operators mired in mortgage-land.
This is particularly the case with B&B, with its high exposure to the riskier buy-to-let mortgage markets.
Although B&B kept its share price gains to the close yesterday, A&L later lost them to close in negative territory. My guess is B&B will lose some of these gains next week as scepticism grows about Lloyds's appetite for a UK acquisitive foray in stormy waters.
IS SIR Fred Goodwin a good poker player?
You sense he will need to be as a seller of Royal Bank of Scotland assets in the current turbulent financial sector.
Whether it is the sale of RBS's insurance division or yesterday's news that the ABN Amro wholesale and investment banking business it acquired in Australia and New Zealand is potentially up for sale, there is bound to be strong haggling with any suitors.
Potential buyers (with Clydesdale Bank-owning National Australia Bank the front-runner in the case of the ABN assets) have two advantages in the game of five-card stud (I mean discussions) going on with RBS.
The suitors will cite the uncertain outlook for financial services generally to question the short and medium-term prospects for the assets on the table, hopefully to drive down the price they have to pay.
And the buyers are also aware that, even with RBS's taken-up £12 billion rights issue and £3.6bn raised by selling train-leasing subsidiary Angel Trains, the Scottish bank is still seen by some in the City as needing more capital.
By contrast, Goodwin will be doing everything he can to project insouciance amid the strong winds around his group.
He is sure to argue that RBS, despite its challenges, would not countenance knockdown asset sales even in the current difficult environment because the assets are much more valuable strategically to suitors than the present market circumstances suggest.
The City has also over-hyped the Royal's need for extra capital from asset sales, he may well say, and the bank is just as prepared to keep profitable assets if it cannot realise the price it believes they deserve.
Looking at the flurry of potential buyers who have walked away from the insurance division sale, it is not a negotiating stance guaranteed to succeed.
Brinkmanship and some bluffing is likely on both sides of the negotiations.
SMALL BUT BEAUTIFUL
Bright Spark as investment firm bids to halt share fallINVESTMENT firm Spark Ventures moved to halt the recent slide in its share price with claims that its net asset value should be at least 15p a share for the year to 31 March 2008.
The company, formerly known as New Media Spark, also said it maintains "significant" cash balances and has no debt.
Meanwhile, portfolio negotiations that might improve on the net asset figure should conclude by the end of this month, while talks started earlier this year with a strategic investor are ongoing.
In January, the firm, which has a market cap of around £30.29 million, said it had entered discussions about a sizeable investment of between £15m and £20m at a "significant premium" to the share price.
The company said in a statement released to the Stock Exchange yesterday: "Prior to releasing the detailed preliminary results, the board is awaiting the outcome of portfolio negotiations which are expected to conclude by the end of July and may or may not produce an improved effect on the net asset figure.
"Discussions with the strategic investor announced earlier in the year are continuing."
RUMOUR OF THE DAY
Negotiations are a heady brewANHEUSER-Busch has finally begun negotiations for a friendly merger with InBev, a source familiar with the situation has claimed, sending shares of both brewers up about 8 per cent in early trading yesterday.
Anheuser, the maker of Budweiser and Michelob, had been a reluctant takeover target, spurning InBev's $46.3 billion (£23.4bn) bid and fighting efforts by the Belgian-Brazilian company to oust its board.
After weeks of mounting tensions, it was reported yesterday that InBev, maker of Stella Artois and Beck's beer, had raised its bid to $70 a share from $65 in an effort to seal a friendly deal.
Anheuser's board is likely to accept the sweetened offer this weekend, a person familiar with the matter claimed.
The full article contains 1079 words and appears in The Scotsman newspaper.
