Obsessive readers of The Times’s Rumour of the Day will remember that just over six years ago the newspaper picked up talk that Barclays was hovering over ABN Amro. Last night the British bank announced that it was in exclusive preliminary discussions with the Dutch bank.

No bargain has been struck. This deal, in the words of one person involved, is a “very slippery fish”. Yet whatever happens, the long-rumoured round of European banking consolidation is under way.

All of this raises one fundamental question for the banking sector: is bigger better? Would an £80 billion Barclays Bank serve its shareholders and customers better than a £45 billion Barclays?

The largest banks have not covered themselves in glory. Citigroup, the biggest, is a case history in how the centre can lose control of an empire. Likewise, HSBC is struggling with far-flung problems, the consequence of London not keeping a tight grip on its acquisitions.

Among the top five banks, only Bank of America and the Industrial and Commercial Bank of China have recently pleased shareholders. Neither of those have really ventured abroad.

In theory the rise of global companies should have led to the need for global banks but, in practice, multinationals seem to be happy picking and mixing their banks.

Robbed of the takeover premium, the big banks tend to trade at lower multiples than medium-sized ones. Synergies in bank mergers are, necessarily, limited, as big overlaps mean mergers result in paralysis and staff desertions. And there are systemic causes for concern: these megaliths are too big to be allowed to fail.

Barclays and ABN Amro may be fated to merge. There is industrial and geographical logic to the deal. But before Marcus Agius, the former Lazard banker and newly arrived Barclays chairman, gives his stamp of approval, it is worth remembering the long and difficult journey Barclays went through in absorbing the Woolwich. And that was in English.

Choice had no alternative

"Nothing has more strength than dire necessity.” What held true for the great Greek playwright Euripides also holds true for that great purveyor of holidays to Greece, First Choice.

Following the Thomas Cook/MyTravel merger announcement six weeks ago, Peter Long, the First Choice chief, saw what needed to be done. He had planned to sell his mainstream business to focus on higher-margin niche holidays but after his two rivals hooked up, he realised he needed a travelling companion of his own.

First Choice was faced with the prospect of being outgunned by a £3 billion competitior. So just three days after their announcement, Mr Long phoned his counterpart at TUI, Michael Frenzel, and proposed an even bigger merger. He will shortly find himself presiding over a company worth as much £4.5 billion.

In normal circumstances, such mega-mergers might have been expected to attract the ire of the competition authorities. But the world is a very different one compared with that which saw MyTravel’s takeover bid for First Choice eight years ago blocked (erroneously as it turned out) by the European Commission. Today, the biggest competition comes not from rival tour operators but from the budget airlines and internet companies such as Expedia.

The prize for Long is the potential for improving TUI’s 2 per cent operating margin to something nearer the 5 per cent achieved by First Choice. At the same time, the enlarged group should be able to compete more effectively in the brave new world of independent travel. First Choice and TUI may have been thrown together out of dire necessity but the enlarged business should soon be playing from a position of considerable strength.

Wizard Os

George Osborne delivered his own version of the Pre-Budget Report yesterday.

The Shadow Chancellor announced that the Conservative Party plans to cut the headline rate of corporation tax by 3p in the pound. And, by doing so, he scooped the Chancellor: a reduction in the rate of corporation tax is one of the ideas that Gordon Brown is said to have been mulling as he prepares for his eleventh and, presumably, final Budget tomorrow.

Business groups have been equivocal in their response to Mr Osborne’s proposal. On the one hand, the CBI welcomed the pledge to lower the level of corporation tax. On the other, it bemoaned the plans to scrap certain tax reliefs to fund it. This is churlish.

Business should be cheered by Mr Osborne’s preemptive strike. First, he has kicked off Budget week — a week that may come to be dominated by Labour Party politics, investment in education and green taxation — with a welcome focus on the needs of business. Second, he has signalled the Conservative Party’s serious concern with the tax burden on British companies, noting how the UK’s competitiveness in Europe has, in tax terms at least, slipped in the past decade.

Third, he has laid out a plan that is fully costed, promising that the cut will be financed out of savings from an adjustment in capital depreciation allowances. And, fourth, while this may add to the strain on parts of the British manufacturing industry, Mr Osborne’s inclination towards a lower and simpler UK corporate tax structure is welcome.

Lynda Gratton, Professor of Management Practice at the London Business School, grapples in her Best of the MBA podcast on TimesOnline with one of the most difficult issues in the workplace: how to make an office froth with ideas, rather than freeze out innovation. She suggests the answer lies in cooperation, cross-fertilisation, high-minded ambition and that powerful and underrated resource: the volunteer.

james.harding@thetimes.co.uk

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