By Lawrence White and Sinead Cruise
LONDON (Reuters) - Barclays Plc (L:BARC) is not actively exploring a potential merger with rivals, two sources close to the bank said, as speculation mounts about how the British lender plans to defend itself against activist investor Edward Bramson.
The Financial Times reported on Wednesday that Barclays' senior board members were exploring a deal with another bank and chairman John McFarlane was keen on the idea of a possible combination with Standard Chartered (L:STAN).
Barclays declined to comment on the FT report.
"We are entirely focused on executing our strategy, and do not comment on this type of speculation," a spokesman for Standard Chartered said.
Two sources close to Barclays told Reuters no deal was in the works and the bank had no plans to combine its operations with any of its rivals.
But the speculation about a potential deal comes as both banks face pressure from investors to boost returns after years of costly restructuring.
For Barclays, the FT report said the moves were part of wide-ranging contingency plans being considered in response to pressure from activist investor Bramson, who has become one of its biggest shareholders.
Chief Executive Jes Staley is betting that an aggressive push in investment banking will revitalize profits and dividends against a backdrop of dwindling competition from European rivals.
But the New York-based Bramson wants Barclays to axe its expensive trading operations and focus on its retail, corporate and credit card businesses which deliver superior and more dependable risk-adjusted returns, three sources familiar with the matter have told Reuters.
Standard Chartered shares rose by 1.4 percent on Wednesday while Barclays shares were trading down 0.7 percent in line with the FTSE index of British banks (FTNMX8350).
NO RATIONALE
Senior sources at Barclays said they have met with Bramson but not yet heard his full proposals for what changes he wants to see.
Analysts were however skeptical about the logic of a potential deal and its compatibility with Bramson's aims of creating a leaner and more tightly focused bank.
"Given Standard Chartered's business mix, the suggested rationale, as a response to Barclays' activist interest, makes absolutely no sense to us," said Ian Gordon, analyst at Investec bank in London.
The FT report said that Barclays International Unit chair, Gerry Grimstone, supported McFarlane's idea of a tie up with StanChart.
The FT said that a private conversation had taken place between a director at each bank about the potential benefits of such a deal, but no formal or informal bid approach had taken place.
Edward Firth, analyst at KBW in London, said both banks were grappling with strategic problems that would not be resolved by a merger, pointing to Barclays' under-performing investment bank and StanChart's inability to generate enough capital to exploit growth opportunities in its core Asian markets.
"One underperforming business plus another underperforming business give you a larger underperforming business," Firth said.