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MARKET COMMENT
By
Carburton Street, London -- "There has been much talk of consolidation activity in the banking sector. We are concerned however, that all too often, consolidation inspired earnings gains are short term in character and deficient in quality. Moreover, we are very clear that re-invention and not consolidation is the real imperative for this business." How times change. James Crosby, the Chief Executive of Halifax (LSE: HFX), made that statement in February 2000. But today sees a distinct U-turn. This morning's announcement that Halifax and Bank of Scotland (LSE: BSCT) are in merger talks is the latest consolidation round in the banking sector. Undoubtedly, it has to be third time lucky for Bank of Scotland (LSE: BSCT). After failed attempts to acquire NatWest and to partner Abbey National (LSE: ANL), the Scottish bank looks to have played its final consolidation card. To gain the economies of scale needed to succeed in this cutthroat sector, it has turned to the only suitable player left. The sector small fry -- Alliance & Leicester (LSE: AL.), Northern Rock (LSE: NRK) and Bradford & Bingley (LSE: BB.) -- need not have applied. However, with Abbey National in the sights of Lloyds TSB (LSE: LLOY), there is a distinct smell of desperation in today's move. It's either merge or wither for the two participants. The question now concerning any Halifax/Bank of Scotland tie-up will surround management issues. But just like the proposed Abbey National/Bank of Scotland deal, it looks an uneasy situation for the two boardrooms involved. The contrast between the maverick Crosby, who has deliberately stirred the ongoing mortgage and current account wars, and the conservative Peter Burt of Bank of Scotland, is stark While the resulting geographic spread and cross-fertilisation of differing banking expertise would be commendable, a definite culture clash looms in this proposed "merger of equals". Given Bank of Scotland's desire to merge with seemingly anybody, Burt, the undoubted leader of any combined entity, should certainly revisit Crosby's "consolidation inspired earnings" warning. More Halifax discussion board | Bank of Scotland discussion board