Big bank brawl
It’s all very well to agree to marry someone, but the real work – and all the stress – is in the preparations for the marriage ceremony. Barclays is about to find that out, having finalised the terms for acquiring ABN of the Netherlands in a so-called “merger protocol.”
If all goes to plan, the organisations will formally combine towards the end of the year to create one of the five biggest banks in the world, worth well over £90bn (£97bn on basis of current share prices).
It’ll be called Barclays Group, its chief executive will be Barclays’ John Varley, but HQ will be in the Netherlands.
All may not go to plan. There are significant regulatory hurdles that have to be overcome: over the coming three months or so, Barclays and ABN will have to receive approval from banking regulators in 70 different countries, from Asia to South America.
A bigger obstacle is probably Barclays’ irrepressible British rival, the Royal Bank of Scotland, which also has designs on ABN.
In partnership with Santander of Spain and Fortis of Belgium, RBS wants to make a takeover offer for ABN.
RBS had believed it could pay more than Barclays, having effectively pre-sold to Santander and Fortis the big bits of ABN it doesn’t want.
To date, ABN’s senior directors have not manifested any great enthusiasm for RBS’s plan, perhaps because they would have to look for other employment if their bank were broken up.
However, they’ve agreed to meet with the chairmen and chief executives of RBS, Santander and Fortis this afternoon to give them a chance to put their case.
But even before hearing what RBS has to say, ABN is trying to repel it by selling its US bank, LaSalle, which is particularly prized by RBS. And the price it’s receiving for LaSalle looks very substantial indeed – which will make it very hard for RBS to justify a price for the whole of ABN that put a bigger value on LaSalle.
So RBS will have to work hard today to keep its ambitions of snatching ABN alive.
ABN’s choice of buyer for LaSalle is also piquant. It is selling to Bank of America, which in the past indicated its interest in buying Barclays but may now feel less disposed towards spoiling Barclays’ impending nuptials with ABN.
Also, there was a strong signal last week from the Dutch banking regulator that it wasn’t relaxed about seeing ABN dismantled by RBS. And it would be naïve to believe that Dutch domestic politics won’t have an impact on what happens to ABN, since traditionally it has been the pride of banking in the Netherlands.
RBS isn’t wholly without friends. The European Commission has made clear that it will try to prevent any deal being blocked for protectionist motives.
Probably of more significance is that RBS has the backing of important ABN shareholders, especially the hedge fund TCI, which has been pressing ABN to break itself up or sell itself.
So Barclays versus RBS is shaping up to be a thrilling contest.
For Barclays, the risks are considerable. If it fails to acquire ABN, it may become vulnerable to being taken over, having signalled that it regards supersizing itself as important for success in today global banking market.
Equally, RBS too would look somewhat strategically challenged if it dares and fails in combat against Barclays.
That said, it is striking that for once two confident, substantial British companies are taking the initiative in the global takeover market and endeavouring to purchase an overseas rival – rather than conforming to the normal British pattern of being bought by foreign interests.
Hooray for that, so long as the victor doesn’t repeat the mistake of so many previous British companies when venturing overseas by overpaying.
What Barclays and RBS are testing is whether there is a genuine pan-European takeover market in banks.
Will international investors like TCI determine the future shape of the European banking market, such that ABN is simply sold to the highest bidder? Or will the structure of the banking industry continue to be determined by national politicians whose instincts are protectionist?
If ultimately the fate of ABN is decided by its shareholders, the consequences could be profound. There could be a spate of cross-border takeovers within Europe.
The concept of the British, French or German bank would wither and the concept of the European bank would be born.