Deal set to send European shares soaring

EUROPEAN banking shares are expected to soar today as shock waves from two of the biggest financial deals the world has ever seen reverberate around the world's stock markets.

Merger mania gripped Wall Street yesterday, adding billions to the value of US financial stocks, after BankAmerica and NationsBank announced a $60bn merger and Banc One and First Chicago unveiled a $30bn partnership which will create the largest and fifth biggest banks in America respectively.

Banking shares jumped for the second time in seven days yesterday as analysts predicted that the consolidation in the industry still had some way to go and more mega-deals could be just around the corner.

US financial stocks have already risen to record highs in the wake of last week's announcement that Citicorp and Travelers Group were to merge to create an $80bn financial powerhouse in the largest deal in corporate history.

The fundamental restructuring of the world's banking system initiated by the Americans is likely to change the face of the global finance industry and have widespread implications for most European banks.

The deals will once again turn the bid spotlight on UK banks, and analysts expect the news to send their shares, and the stock market generally, to new heights. The banking sector has already enjoyed a storming run over the last few months, comfortably outperforming the wider stock market and seeing stock prices rise to record levels.

The move will put increasing pressure on UK banks to consider mergers and some City observers believe that it is only a matter of time before several of Britain's financial giants have to join forces to compete with the banking goliaths being created across the Atlantic.

High street giants such as NatWest, Barclays, Halifax and Royal Bank of Scotland could be likely merger or takeover candidates, and consolidation in the sector could see some of Britain's best known banking names disappear over the next few years.

The American deals will also increase pressure for cross-border deals to create a pan-European bank.

The rapid consolidation of the US banking sector is likely to prompt banks such as Lloyds TSB, which has already announced it is looking for significant new purchases, to accelerate expansion plans and hit the acquisition trail.

As well as a sharp rise in the shares in all four American banks involved in the mergers yesterday, other financial stocks such as JP Morgan and Merrill Lynch and regional banking groups leapt upwards as US traders speculated on who would be next takeover target. However Citicorp's and Travelers' stock slipped after the sharp rise in their share prices last week as the market reacted to the creation of two significant new competitors.

US analysts said they expected Chase Manhattan, currently the largest US bank, to make a strike in the wake of the deals announced yesterday and believe it could be eyeing up Merrill Lynch. JP Morgan could attract a big investment bank such as Morgan Stanley Dean Witter.

Regional banks such as PNC Bank, KeyCorp, Wells Fargo & Co. and Fleet Financial Group are also likely to be considering mergers.