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Banking industry

Mortgage Bank Shares Surge on Bid Speculation

Strategic Insights

— 1 min read

The long-struggling mortgage bank sector saw shares of several institutions surge on hopes that Barclays' proposed acquisition of Woolwich could spark a wave of bids for other banks. Shares jumped by 4-6% with Abbey National, Alliance & Leicester, Northern Rock, and Halifax seeing gains of 19p, 31p, 25p, and 11p respectively. However, analysts and bankers expressed skepticism that restructuring was needed to combat falling mortgage margins, and that bid speculation might be short-lived. The market is now focusing on Abbey National, which has been a target for Lloyds TSB, and Northern Rock, which has a strong network of independent financial advisers that could be attractive to HSBC or Bank of Scotland.

Key Takeaways:

  • The proposed acquisition of Woolwich by Barclays sparked a 4-6% surge in shares of several mortgage banks, including Abbey National, Alliance & Leicester, Northern Rock, and Halifax.
  • Analysts and bankers expressed skepticism that restructuring is urgently needed to combat falling mortgage margins, with some viewing bid speculation as short-lived.
  • Abbey National and Northern Rock are seen as prime targets for Lloyds TSB and other banks looking to expand their mortgage business.
  • The market thinks Abbey would be a good fit for Lloyds TSB as it would give the bank bigger market share in mortgages and savings.
  • Northern Rock's strong network of independent financial advisers could be attractive to HSBC, which is weak in this area.
  • The outlook for the mortgage banks and their shareholders is bleak, with justifying their place on the stock market potentially tricky.

Statistics:

  • Shares of Abbey National rose 19p to 754p.
  • Alliance & Leicester gained 31p to 530p.
  • Northern Rock rose 25p to 392p.
  • Halifax closed up 11p at 531p.
  • Surviving mortgage banks are not attractive to bidders, with some being small or too big.
  • Just over 5 million customers are tied to Alliance & Leicester.
  • More than 20% of the market could be held by Lloyds and Abbey if the bank was acquired.
  • The capitalisation of Halifax is in excess of £11 billion.
  • The market capitalisation of Alliance & Leicester is around £2.5 billion.

Sources:

  • Commerzbank's Alexander Potter
  • An unidentified bank analyst
  • An institutional investor who contacted The Times
  • The Times: reporter, Simon Targett
  • Alexander Potter, analyst at Commerzbank (no specific date mentioned)

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