KEY POINTS:
Barclays has approached ABN Amro to propose an £80 billion ($222 million) merger but is facing competition from European rivals.
The two banks are expected to announce they are talking but that there is no certainty the talks will lead to a deal.
A combination of Barclays and
ABN would create one of the world's top-five banks and rank as Europe's biggest cross-border banking deal, producing a group with 47 million customers and 220,000 staff.
Barclays, which has examined a bid for ABN before, made its approach last month after two activist hedge fund investors launched an attack on ABN's lacklustre share price performance and called for a break-up.
The intervention of The Children's Trust (TCI), the hedge fund that torpedoed Deutsche Borse's attempted takeover of the London Stock Exchange, and Toscafund has also sparked interest in ABN from a number of other banks. These include Spain's BBVA, France's BNP Paribas and the Dutch rival ING. Santander of Spain and Societe Generale were also mentioned as possible suitors.
Banking sources said talks had been taking place between ING and ABN but broke off last week, partly because of the regulatory problems a merger would face owing to their large share of the Dutch retail banking market. A merger between ABN and Fortis would face similar hurdles.
Any deal between Barclays and ABN would be presented as a merger but it would effectively amount to a takeover by the UK bank, which is worth £45 billion compared to the £36 billion valuation of its Dutch rival.
Merging with ABN would enable Barclays to leapfrog Royal Bank of Scotland to become the UK's second-biggest bank and make it a serious contender in global banking terms with Citigroup and HSBC.
ABN has a strong Asian network, a US retail banking division and a healthy fund management arm but its investment banking business is seen as weak. Barclays, meanwhile, has a strong capital markets business and the world's biggest asset manager in Barclays Global Investors, which has US$1.7 trillion ($2.4 trillion) of assets under management.
Moreover there is little geographic overlap between the two banks.
Although the UK bank has said it does not rule out mergers and acquisitions, it is conscious of not wanting to be seen to overpay.
John Varley, chief executive of Barclays, is on record as saying that mergers and acquisitions are "the servant of strategy, not the other way around".
- INDEPENDENT