“Hello my son, fancy a takeover tip? I’ve got a lovely selection. Banks? Electricals? Insurers? Come on, just step over here, I’ll give you a nice price on the perfect little bank bid story. A special price just for you. Yes? You like that one? Lovely, innit. That’ll make you 20 per cent before Christmas. Lovely. Just what you need to touch up those year-end figures, innit. It’s bonus time, you know. You’ve gotta look shrewd. Now which bank story do ya want? Come on now….”
When and why did all the research analysts turn into market spivs? The question was begging an answer again on Friday after an outlandish note from the banking sector team at Merrill Lynch in New York, who published their belief that Bank of America is about to take over Barclays.
That would be an acquisition worth something north of $100bn, creating an entity valued at $350bn or more. The new Bank of America and Britain would leapfrog Citigroup to become the biggest bank in the world.
So what evidence have the Merrill boys collected? Well, BofA’s finance officer has just resigned and he might have done this now because he didn’t want to resign when the bank had just executed a major deal. Oh, and chief executive Ken Lewis cancelled a meeting with institutional investors this week because he had to go on a business trip.
And that’s about it. One resignation and one cancelled meeting. It’s the sort of “intelligence” that if presented to a news editor on this or any other newspaper would lead to the reporter responsible being laughed off the editorial floor.
Yet Merrill’s over-enthusiastic speculation is not an isolated example. Just this week Harriet Green, chief executive of Premier Farnell, was forced to deny chatter that the company was discussing a merger with its rival electronics distributor, Electrocomponents, following a note from a Citigroup analyst. It was Marc Van’t Sant’s “Top Call,” with the Citigroup man predicting 30% price upside on the back of a deal.
At the end of November, in the British mortgage bank sector, Michael Helsby and Steven Hayne from Fox-Pitt Kelton came up with a brainwave: Alliance & Leicester should merge with rival Bradford & Bingley. It didn’t matter that the two institutions have followed opposite strategies — in the view of Messrs Helsby and Hayne the industrial logic was just compelling.
Meanwhile, back in October, a UBS insurance analyst, Roger Hill, brought us the PruSolution — a suggestion that Prudential hive off its British with-profits business and then merge it with Resolution. Rumours of such a deal continue to do the rounds, but they have yet to come true.
There’s a simple reason for all this: demand from hedge funds for short-term trading ideas. And, with markets as frothy as we have seen during 2006, it’s also the case that some of these stories might actually come true.
Anyway, we on Alphaville like the look of Lloyds TSB. We see a big deal on the horizon. Indeed, we think it’s with Santander, the Spanish lot that bought Abbey. Yeah, yeah, we know that Lloyds itself tried to take over Abbey before it fell on hard times — and that got blocked by the Competition Commission — but times have changed. This one’s real. A bloke in Mayfair told us. He’s already bought the stock.