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].