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Investment view

One of the questions which arose at the AITC Forum in Bristol related to

how Gerrard came to be the company it is today. I tried to answer the

question but lost count of the number of stockbroking firms that went to

make up this grand company of ours. It made me realise how much the

landscape has changed in stockbroking. The big firms when I started out in

the City – James Capel, Hoare Govett, Grieveson Grant – are now part of

major banking businesses, two of them foreign and the other, HSBC, a truly

international group. But then, banking is rather different these days as


It should not, perhaps, have been any surprise that Patricia Hewitt turned

down Lloyds TSB&#39s proposed takeover of Abbey National – not that the logic

behind the recommendation of the Competition Commission is entirely beyond

question. It is hard to see why this takeover would reduce competition in

the small business banking market. Moreover, Abbey National is probably too

small to remain independent. If it does not fall to another predator, it

will have to form some liaisons pretty fast to stay in the game.

A generation ago, the big four were Barclays, NatWest, Midland and Lloyds,

pretty much in that order. Two have fallen victim to takeovers, one losing

its name in the process, while only Barclays has not been through a period

of significant change although it did acquire Woolwich to bolster its

position. It was about the time I first set foot in the Square Mile that

Barclays took over Martin&#39s Bank, of which it is said that the most famous

manager was Captain Mainwaring of Dad&#39s Army fame. Subsequently, we have

had the demutualisation of the building societies. Think, too, how many of

these have vanished into the arms of other financial institutions. Yet

banking remains a sensitive area and one where the Competition Commission

and the Government will take action if they feel the interests of consumers

are compromised.

The problem is retail banks tend to be domestic animals while many of the

commercial and investment activities in the financial sector now transcend

national boundaries. Thus, you have Americans and Europeans gobbling up

investment banks and expanding their activities into financial centres

around the world while making comparatively little impact on the

high-street banking scene. This could be where the next bout of activity

develops. National Bank of Australia, which already owns Clydesdale Bank

and Yorkshire Bank, has been rumoured as a possible partner for Abbey

National. It is unlikely to be welcomed. We will have to see what develops.

The Government has made it clear that we are unlikely to see much, if any,

activity at the top end of the market but there are plenty of smaller

players likely to participate in any further round of consolidations. Bank

of Scotland and Northern Rock have been mentioned as targets but both are

run efficiently enough that it is hard to see an acquisitor reaping any

synergy benefits from taking either on board. Alliance & Leicester must be

in the frame. Then again, we could see a revival of bancassurance

development, with the recently floated Friends Provident almost certainly

one of the companies likely to remain in its own shareholders&#39 hands for

only a comparatively short space of time.

Never build a portfolio through takeover tips, though. When I worked in a

merchant bank, it had to be said that for every deal that saw the light of

day there were several dozen that were abandoned before they entered the

public arena. Nor do bids automatically deliver value to shareholders.

Still, in markets that persist in moving sideways amid growing gloom on the

economic front, it is nice to generate a bit of excitement in your

portfolio. The financial sector is unlikely to stay still for long.


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