Barclays: Going Cheap

The market really doesn’t want Barclays to buy ABN Amro. After Barclays president

Bob Diamond all

but threw in the towel yesterday, the bank’s shares

are up 20p, or 3.45%, today. But wait! Isn’t there a catch-22

here? Barclays’ offer for ABN Amro is largely in stock, not cash, so if the

share price is rising, doesn’t that make its offer more attractive, and therefore

more likely to succeed?

Er, no. As Dana Cimilluca notes

today, Barclays’ offer was made when its share price was 735p. It was inadequate

then: the market calculated that the shares would have to rise to 820p before

the offer was competitive with the rival RBS-led proposal. Today, even after

this morning’s jump, the Barclays share price is just 600p – cheap enough

to be a serious takeover candidate of its own. Although I can’t imagine any

large global institution launching a monster takeover bid for Barclays right

now, I must say.

Besides, one fears to think what Barclays’ UK mortgage exposure is like. If

and when the UK housing and credit bubble bursts, the consequences for Barclays’

balance sheet could be nasty indeed – especially if it hasn’t managed

to diversify into the Netherlands, Italy, and Brazil.

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