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MARKET COMMENT
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Banking is a great industry for long-term buy and holders. Even if your chosen operator flounders from one blunder to another, the industry's ongoing consolidation will almost certainly come to the rescue. Former investors of National Westminster will know all about this phenomenon. Abbey National (LSE: ANL) shareholders are about to discover it too. Ever since Abbey National failed in its takeover approach for Bank of Scotland in November 2000, it's been clear the mortgage bank has needed a long-term partner. Although Abbey National rejected (and the Government blocked) a bid from Lloyds TSB (LSE: LLOY) last year and an approach from National Australia Bank earlier this year, it's now the turn of Bank of Ireland (LSE: BKIR) to try its luck. And who can blame the Irish bank for making an approach? Abbey National looks ripe for the picking. Hefty write-offs, a strategy in tatters, no chief executive and a downbeat stock market have left Abbey National a forlorn, mid-table sector player. Indeed, such has been the pessimism surrounding the company the shares were recently offering a prospective dividend yield of over 10%. Today's publication of the merger proposal from Bank of Ireland (LSE: BKIR) for Abbey National currently indicates a takeover price of between 689p and 720p per share. The top-of-the-range offer price values Abbey National on a price to earnings ratio of 11 and a prospective dividend yield of 7.3%. While the proposal highlighted £400m of 'synergies before tax', the miserly valuation must explain why Abbey National rejected the proposal last month. The best bet now for Abbey National shareholders? Simply hang on for the dividends or a better takeover offer. Although the shares jumped 46p to 664p this morning, the valuation downside of a dividend cut or a struggling, go-it-alone Abbey National still appears minimal.