Market talk has long held Royal Bank of Scotland as a likely buyer for Sovereign Bancorp of Philadelphia, a midsize company that would give Royal Bank's U.S. unit a huge lift in its core markets of New England, New Jersey, and Pennsylvania.
Rumors revived last week after Bank of America Corp. said it would buy FleetBoston Financial Corp. - Royal Bank and Sovereign's biggest rival in the region. Talk of an impending offer by the Edinburgh bank through its Citizens Financial Group subsidiary picked up over the weekend.
On Monday morning the New York Stock Exchange delayed trading in Sovereign shares. When trading did open, the stock jumped 12%.
Dick Ehst, a spokesman for $41 billion-asset Sovereign, said management had "no idea why" the NYSE made the move and that it "certainly wasn't based on any conversation with Sovereign."
Mr. Ehst said that he would not comment on rumors and that Sovereign would not release a statement, despite the market action. "There is no reason to put anything out, because there's no news pending."
Most observers said two clear signals emerged over the weekend, however: Sovereign is in play, and Royal Bank of Scotland is looking to make a deal.
John Kline, an analyst with Sandler O'Neill & Partners LP, said his firm has "always thought that the Sovereign franchise had a lot of value to a potential buyer" and that B of A's deal for Fleet "only helps to enhance that value.
Sovereign is "the last road into New England," making it a hot property for larger players seeking a deal there, Mr. Kline said.
A spokeswoman for Citizens Financial, based in Providence, R.I., could not be reached immediately.
Gerard Cassidy, an analyst with Royal Bank of Canada's RBC Capital Markets, said the Bank of America-Fleet deal would "be a catalyst" for other banks that do not want to get left behind in the Northeast.
"If the acquirers don't move aggressively, their competitors could beat them to the punch," Mr. Cassidy said.
He said that Washington Mutual Inc., Citigroup Inc., J.P. Morgan Chase & Co., and Wachovia Corp. would also make a list of potential Sovereign acquirers.
Speculation about the company's fate intensified over the weekend when The Independent newspaper in London reported that Royal Bank had offered Sovereign $25 a share, or $7.5 billion, but was rejected.
The NYSE, anticipating Monday's price jump on the weekend report, delayed trading in Sovereign until 10:18 am to allow for "news dissemination," a spokeswoman for the exchange said, declining to elaborate.
Thomas B. Michaud, the vice chairman and chief operating officer of Keefe, Bruyette & Woods Inc., said that with Fleet out of the picture the only deal properties left in New England are Sovereign and Banknorth Group Inc., with Sovereign the more likely target.
Mr. Michaud said: "If you wanted to be meaningful in New England, Fleet was it, and now that opportunity doesn't exist anymore."
Keefe Bruyette predicted a Royal Bank of Scotland move for Sovereign in a Sept. 26 research note, quoting a price of between $25 and $28 a share.
Michael J. Stead, a fund manager at Wells Fargo & Co.'s Wells Capital Management in San Francisco, said with Fleet off the table, Wachovia and Citi must look elsewhere "to round up their franchises," which could drive Sovereign's price higher.
The Independent said Sovereign's management is looking for closer to $30 a share, or $9 billion.
But Adam Barkstrom of Legg Mason Wood Walker Inc. in Baltimore said $30 would translate into 4.7 times tangible book value - an "insane" number, he said.
Shares of Sovereign closed up 9.9%.
Matthias Rieker contributed to this article.
