Barclays’ ambitions take another step up

March 10, 2010

Barclays’  ambitions are moving to another level. The UK bank became a big player on Wall Street by snapping up Lehman Brothers’ U.S. operations after the firm collapsed in September 2008. The revelation that it is interested in a U.S. retail banking deal suggests it wants to become a familiar face on Main Street too.

There are logical reasons for the move. President Barack Obama’s 0.15 percent levy on banks’ wholesale exposures could reduce Barclays’ 2011 net income by 14 percent, according to JPMorgan. Amassing a U.S. retail base could help ensure that further growth is balanced by customer deposits rather than short-term wholesale funding. This is also in line with reforms currently being examined by the Basel Committee, which sets banking standards.

Yet Barclays’ motivation may not be purely financial. While the likes of Royal Bank of Scotland are shrinking balance sheets and making their way through mountains of impairments, Barclays had a good 2009. It increased its core Tier 1 capital ratio to over 10 percent. That puts it in a strong position to expand.

Barclays has long sought to become a top global universal bank. But it if it wants to be taken seriously in Washington, it probably needs a stronger U.S. consumer presence — even if that means expanding in a mature market. For Bob Diamond, the bank’s president and a frontrunner to be CEO, Barclays’ influence on high should be an important consideration.

A substantial U.S. lender like SunTrust Banks <would fit the bill. But Barclays shouldn’t rush. Any target would need to have its tyres comprehensively kicked to exclude any subprime nasties. So long as uncertainty surrounds the implications of the Basel reforms and proposals to stop universal banks doing proprietary trading, caution is justified.

Action is 18 months away at the very least, according to a person familiar with the situation. But that might not preclude a opportunistic deal sooner. If so, Barclays ought to be able to demonstrate why a U.S. deal is better than chasing returns in faster-growing corners of the globe.

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The collapse of Lehman into Barclays’s arms and the death of Bear Stearns is giving Barclays a huge advantage in the corporate debt markets

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