LONDON (MarketWatch) -- Bank of America could be about to make a bid for U.K. retail and investment-banking group Barclays in a deal that would create the world's biggest bank, according to analysts at Merrill Lynch.
"Bank of America has previously indicated that the next phase of its expansion is to become a leading global commercial and investment bank. In order to achieve that goal, we believe Bank of America is very interested in acquiring Barclays," the broker said in a note to clients.
Shares in Barclays (BCS : Barclays PLC
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BCS57.07, -1.21, -2.1%) (UK:BARC: news, chart, profile) gained 1.3% in London, having already risen sharply in the previous session on talk of a takeover bid, which would be the biggest ever financial-services acquisition. Also see London Markets.
Bank of America (BAC : bank of america corporation com
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BAC52.55, +0.89, +1.7%) wants to build top-tier positions in businesses such as global treasury management, global asset management and global fixed-income underwriting and trading, said Merrill Lynch.
Barclays, the U.K's third-largest bank by market capitalization, would give Bank of America a significant international presence in each of these markets, as well as a major U.K. retail and commercial bank and the U.K.'s biggest credit-card business.
"We think Barclays is the perfect fit for Bank of America, given our understanding of Bank of America's international aspirations," Merrill Lynch said.
The report was authored by analysts Edward Najarian and Brian Bedell in New York and John-Paul Crutchley in London.
A spokesman for Barclays said the bank doesn't comment on rumors and speculation. A Bank of America spokeswoman also declined to comment.
Merrill Lynch said it believes Bank of America, the world's second-largest bank by market capitalization, could generate savings of up to 1.5 billion pounds ($3 billion) from a deal, including through lower corporate and staff costs and the integration of credit-card divisions.
Those savings would allow it to pay a 25% to 30% premium to Thursday's closing price of 707 pence a share.
A 30% premium would value Barclays at around $117.6 billion, or roughly half of Bank of America's $235.7 billion market capitalization.
A takeover would see Bank of America easily outstrip Citigroup (C : Citigroup, Inc
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C52.88, +1.03, +2.0%) to become the biggest bank in the world.
CFO's departure may be a sign
Merrill Lynch added it believes the timing of the recent resignation of Bank of America's Chief Financial Officer Al de Molina could hint at a deal.
"While we believe de Molina resigned of his own accord to pursue a CEO role at another company, or a more entrepreneurial career, the timing of his resignation is suspect to us," the broker said.
If de Molina were aware of a planned takeover, he could have chosen to resign ahead of the deal to prevent any perceived disruption during the bid process, Merrill Lynch said.
The broker added that Bank of America CEO Ken Lewis cancelled a meeting with a group of institutional investors on Wednesday due to an impromptu business trip.
Merrill Lynch said a deal at a 25% premium could boost Bank of America's earnings per share by around 0.6% in 2008 and 4.1% in 2009 if it was completed by the third quarter of 2007.
"Furthermore, we think the acquisition of Barclays would enhance Bank of America's long-term growth rate because it would provide numerous avenues for Bank of America to continue to grow on an international scale," the broker noted.
"We also think Barclays has numerous international product capabilities, such as fixed-income underwriting and trading, derivatives, indexed asset management, and exchange-traded funds, which could be cross-sold to Bank of America's large customer base," it added.
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