Amid Market Melt Down, Barclays’ Rumored Spanish Banking Acquisition Seems Unlikely

Acquisitions are nothing new for British banking giant Barclays (NYSE:BCS). Neither is the talk of growing in multiple European markets, particularly in Spain. Talk of BCS expanding its Spanish banking operations where it currently holds 2% market share really took off a few months ago when it was learned Barclays CEO Bob Diamond met with Jose Luis Rodriguez Zapatero, the Prime Minister of Spain. Given the macro uncertainty going on in Europe right now and the perception that Spain is one of the more vulnerable economies, an acquisition that injects fresh capital and confidence into the Spanish banking system would probably be welcomed.

The talks could be heating up again according to some recent reports, and with cheap prices and guarantees (reportedly) against loan losses from the Spanish government, the timing may be just right. Add to that a solid Q3 as per management’s conference all on 10/31/11 and all things considered, it’s not surprising acquisition talks are once again making headlines. However given the recent market weakness, it seems unlikely that shareholders could stomach such a move, at least in the near term.

Potential Target

There are a few names that continue to arise when Barclays, Spain and “caja” (a Spanish savings bank) are used in the same sentence. One of the more consistent is Caja de Ahorro del Mediterraneo, better known as CAM. As the ninth largest bank in Spain, this acquisition alone would double Barclay’s presence in the region.

While it is largely assumed that continued growth in the area will help the bank’s Tier 1 ratio and capital requirements, investor sentiment is a legitimate concern in the near-term. Expanding a presence in the European markets with all that is going in Greece and the surrounding area will likely not sit well with short-term investors.

When It’s All Said and Done: What’s It Mean for BCS?

With 27% of Barclays stock price derived from the Consumer Banking division, doubling the institution’s presence in Spain will have repercussions in this area. Depending upon which caja is settled upon, other areas including the largest share of the stock price Sales and Trading, may also be impacted. For Trefis investors, UBS (NYSE: UBS) and Deutsche Bank (NYSE: DB) may have more upside, but don’t lose sight of BCS.