Barclays, the UK's No. 3 bank, might offer about 60 billion euros (US$80 billion) for Amsterdam-based ABN Amro, Keefe, Bruyette & Woods Ltd analyst Jean-Pierre Lambert said.
The discussions may not lead to a transaction, said the analyst, who declined to be identified because negotiations are still at an early stage.
Barclays CEO John Varley, 50, told analysts a month ago that he wants the London-based bank to grow "aggressively" and would consider purchases to enter emerging markets.
Acquiring ABN Amro, which has branches in 53 countries and owns LaSalle Bank in Chicago, would help Barclays to extend retail banking outside the UK and build up its securities, asset and wealth-management arms, Lambert said.
"It makes sense on a strategic and geographical basis," said Guy de Blonay, a London-based fund manager at New Star Asset Management Group Plc, who helps oversee about US$34 billion and holds shares of both companies.
"Barclays is looking for something in Brazil, more in the US and wants to expand in Italy," he said.
Barclays spokesman Jason Nisse in London and ABN Amro spokesman Neil Moorhouse in Amsterdam declined to comment.
The Sunday Times said on Sunday that Barclays made an informal approach to ABN Amro.
The Wall Street Journal said ABN Amro was resisting overtures from several unidentified suitors. BNP Paribas SA and Societe Generale are among banks that have signaled interest in making a bid for ABN Amro, the Journal said, citing unidentified people familiar with the matter.
ABN Amro CEO Rijkman Groenink, meanwhile, was fending off calls from investors, including TCI Fund Management, for the bank to be broken up as he works to cut expenses on last year's purchase of Italy's Banca Antonveneta SpA and loan losses in the US, Latin America and Taiwan.
The company used asset sales to increase fourth-quarter profit by 4.9 percent to 1.36 billion euros.
Shares of ABN Amro fell 0.6 percent to 27.29 euros in Amsterdam last Friday, valuing the company at 52 billion euros.
The stock has risen 7.4 percent in the past month, the best performer in the 72-member Bloomberg Europe Banks and Financial Services Index. Barclays shares fell 13 percent in the same period. ABN Amro's price-to-earnings ratio inched up to 9.7 last week, just ahead of Barclays for the first time in a year.
ABN Amro's stock has been fueled by takeover speculation since Feb. 21 when TCI, a UK hedge fund that two years ago led the ouster of Deutsche Boerse AG's top executives, said the bank is "significantly" undervalued.
"Looking at the sum of the parts, ABN Amro is a cheap stock," de Blonay said on Sunday.
He said he expects any bidder to offer at least 35 euros a share. A sale "would also be an easy solution for ABN, which is fighting off activist shareholders," he said.
ABN Amro, the product of a 1991 merger of the two biggest Dutch banks, made half of its revenue last year from interest income on loans, a quarter from commissions, and most of the remainder from trading and investment banking.
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