One upshot of the credit crunch is that some of the smaller or troubled banks look vulnerable to takeover. Only last week Bank of America CEO Ken Lewis said that he thought it will be more difficult for stand alone investment banks (like Goldman, Lehman, Merrill and Morgan Stanley) to survive, and that they may be swallowed up by commercial banking rivals with bigger balance sheets, better capital-structures and deeper pockets. Well, it didn't take long for the rumour mill to kick into life.

The Daily Telegraph has come out Tuesday and reported that Barclays President Bob Diamond is trying to twist his board's arm to make a bold bid for an investment bank. And, according to the newspaper, top of his wish-list is Lehman Brothers and under-fire UBS.

As the newspaper points out, Lehman would bolster investment banking arm Barclays Capital's presence in the US (something Diamond is keen to do), but there is significant overlaps in terms of jobs in fixed income and huge job losses are likely in the event that a deal is done. Over at UBS, of course, a large proportion of fixed income staff have been (or will be culled), so Diamond and the BarCap team won't need to do as much axe wielding. And UBS's equities, wealth management and private banking businesses would make a deal for the Swiss bank highly attractive.

Rumours are also swirling that Ken Lewis himself, despite his much-regretted comments last year about having about as much 'fun' as he could stand in investment banking, might be mulling over a run at Merrill Lynch. Although busy putting to bed the Countrywide deal at present, the smart money says that once that is sorted, Lewis might pounce (he is said to have long-coveted Merrill's brokerage network).

Finally, Reuters reports that Deutsche Bank and BNP Paribas are both thought to be eyeing up the commercial advisory and corporate clients units Fortis got from the ABN AMRO deal as an RBS consortium member (and which it now needs to ditch for anti-trust reasons). BNP is said to be looking at some of the operations, whilst Deutsche might be thinking of swallowing the lot.

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