ABN, Barclays in exclusive $160 billion merger talks

LONDON/AMSTERDAM (Reuters) - Dutch bank ABN AMRO (AAH.AS) and British bank Barclays (BARC.L) are in exclusive talks for a possible $160 billion merger that would be Europe's biggest financial services deal, they said on Monday.

Shares in ABN AMRO hit a record high earlier on Monday after sources familiar with the matter said on Sunday that Barclays approached ABN AMRO with a merger blueprint.

The two banks said they were in "exclusive preliminary discussions" concerning a merger. They said the talks were "exploratory."

"These discussions are the result of careful consideration to create a highly complementary partnership," they said.

Barclays, Britain's third biggest bank, has a big presence in Europe and Africa. ABN, the Netherlands' biggest bank, also owns large retail banks in the United States, Brazil and Italy.

Analysts said they were a good fit strategically and geographically, but the lack of overlap limited potential cost savings and meant other banks could swoop for ABN.

Several other banks, including Dutch rival ING (ING.AS), Spain's BBVA (BBVA.MC) and France's BNP Paribas (BNPP.PA) have expressed interest -- directly or through advisers -- in either a full merger with ABN AMRO or buying some of its large non-Dutch businesses, sources told Reuters on Sunday.

A source familiar with the matter said ABN entered talks with Barclays after studying proposals it had received from several European banks. It chose to enter exclusive talks to prevent an out-and-out auction, the source added.

ABN has come under pressure from investors, including British hedge fund TCI, to consider a sale or breakup to boost shareholder returns after several years of underperformance. TCI declined to comment on Monday.

ABN shares closed up 9.7 percent at 29.94 euros after hitting a high of 29.96, to lift its market value to 56 billion euros ($74.6 billion). Barclays shares dipped 0.8 percent to 677 pence, valuing it at 44 billion pounds ($85.6 billion).

"It would be a good fit," said Guy de Blonay, fund manager at New Star and a holder of both Barclays and ABN shares. "The vision that (Barclays CEO) John Varley has for Barclays is to be a universal bank that has an international portfolio of assets in different parts of the world.

"There's little overlap or synergies to be extracted to make it extremely good value, but it would be good value on a geographic expansion basis," de Blonay said.