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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.
