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Banks are looking for room to grow

Amy Scott Mar 21, 2007

KAI RYSSDAL: Financial stocks were among the winners today after the Fed’s interest rate announcement. It was that inference in their statement that weaker growth might not lead to a rate-cut any time soon that sent banks higher.

There’s a deal to create what could be the world’s largest bank in the works.

It’s not here — it’s overseas. London’s Barclays is in talks to buy Dutch rival ABN Amro for about $80 billion. Investors are salivating over a possible bidding war, but will it matter to you? Here’s Marketplace’s Amy Scott.

AMY SCOTT: It’s not clear just how big a Barclays-ABN AMRO merger would be. That $80 billion pricetag is almost as much as Barclays itself is worth on the stock market. So analysts say the British bank would have to sell some units to pay for the deal.

One possible candidate is ABN’s LaSalle bank, based in Chicago. And analyst Dick Bove with Punk Ziegel knows a likely buyer. This country’s largest bank by deposits, Bank of America, has been clamoring for a foothold in the Windy City.

DICK BOVE: When you take a look at the overall Bank of America retail system, there’s a big hole there in the Midwest, and they’ve always wanted to buy either LaSalle or Harris Bank, and neither bank was available to be purchased.

But the Barclays deal isn’t done yet. Analysts say another bank, like the Royal Bank of Scotland or France’s BNP Paribas, could step in and outbid Barclays. Either way, many predict another wave of consolidation in the industry.

Christopher Whalen is with research firm Institutional Risk Analytics. He says the banking world is so crowded, it’s hard to grow without buying competitors. And without growth?

CHRISTOPHER WHALEN: Everything on Wall Street today is about the future. If you’re not showing growth, quote unquote, then there’s really no hype in the stock.

Indeed, the hype this week has already pushed stock in both banks up a few notches.

So what’s in it for banking customers? They may resent having fewer choices. But Punk Ziegel’s Dick Bove says mega-mergers brought us perks, like Internet banking and free checking, because they created banks big enough to make the investment.

In New York, I’m Amy Scott for Marketplace.

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