An All-British deal between FTSE 100 companies is almost always preferable to an overseas or private equity takeover which weakens UK equity markets and the exchequer.
Nevertheless, that is no reason to indiscriminately applaud the Barratt takeover of rival Redrow to create Britain’s largest housebuilder.
Bigger is not always better. Redrow investors will welcome the premium although it is worth bearing in mind that its shares are trading at a 30 per cent discount to the all-time highs of 2020.
Founder Steve Morgan’s 16 per cent stake would be worth some £400million if and when the deal goes through.
Building homes is a cyclical enterprise and very much tied to the interest rate cycle.
Merger: Barratt Developments is to buy fellow FTSE100 builder Redrow for £2.5bn – the biggest British housebuilding merger for 17 years
A combination of the pandemic, which saw supply chains constricted and the rapid jump in interest rates from artificially low levels to current borrowing costs, hit hard.
One cannot but help think that builders, so damaged in the financial crisis, which saw many smaller players go belly up, rescued or merged, learnt their lessons too well and have been over-cautious.
The crash in house prices predicted by many has not happened. Recent data shows mortgage approvals, the Nationwide prices index and now the Halifax monitor up 1.3 per cent in January. All are in healthier territory.
Moreover, there is broad consensus that official interest rates peaked at 5.25 per cent and the next move will be down.
Intense competition for home loans means that there are much better replacement mortgage fixes than anyone expected in the autumn of 2022 after the Truss tantrum.
Improved deals should be on offer in 2024 and 2025. Housing is also going to be a battleground in the election.
Labour, with its promise to blitz planning regulations and restore targets, can only underpin ambition, among all parties, to promise more new homes.
Barratt may shrewdly be buying capacity, the ability to build 22,000 homes a year on current projections, at the nadir of the market.
If the merged firm has the bandwidth to properly manage the change, it may come to be seen as a clever deal.
Caution is required. The decision to find a job for Redrow chief executive Matthew Pratt as boss of the David Wilson Homes label and a seat on the board may look sensible. Such job carve-ups rarely work.
Among the reasons why the Tories have found housebuilding so hard and missed targets is because the financial crisis wiped out so many regional and smaller players.
With every merger there are capacity losses, jobs are cut to save costs, national coverage becomes more patchy and competition is lessened.
The Barratt-Redrow deal should not be exalted from the rooftops.
Stock markets are often seen as a predictor of economic health and share prices are among the components of the US Leading Economic Index.
So it is hard to ignore the fact that the S&P 500, the broadest of the American stock market and the Nasdaq, hit new highs. It wasn’t meant to be like this.
The Federal Reserve’s monetary tightening, as it belatedly tackled inflation, was intended to squeeze the pips of the American economy.
Consumers and businesses have ignored conventional wisdom and the US defied expectations by growing 3.1 per cent last year.
Projections of a slowdown in a buoyant labour market have proved wrong.
Corporate earnings from the Ford motor company to Uber and Silicon Valley have all surprised on the upside.
Why should we care?
The US remains Britain’s biggest single trading partner and remarkably the UK boasts a surplus with the Yanks. America’s prosperity should assist our own.
The UK’s Big Four may be convinced that branch banking is a waste of time.
Sweden’s Handelsbanken has a different approach: understated branches in many of our cities offer the relationship banking treasured by business and consumers.
In the last year income climbed to £918million and operating profits by 59 per cent to £476.4million.
Handelsbanken, similarly to all banks, will have benefited from wider interest rate margins. UK boss Mikael Sorensen hails the record results as a success for ‘our unique business model’.
Are British rivals listening?