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Big bank brawl

Robert Peston | 07:45 UK time, Monday, 23 April 2007

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).

John_Varley.jpgIt’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.

Comments   Post your comment

  • 1.
  • At 09:03 AM on 23 Apr 2007,
  • Dick wrote:

I think the Dutch would be well advised to read the Ernst & Young Item Club report and considering to what extent these banks have helped the UK to arrive at such a precarious position.

Personally, I would give neither of them house room.

Lets put this in perspective –for consumers, would this take over help to reduce overdraft penalties or doggy call centre leaking personal details to hackers? Or for commercial investment, potentially, world’s fifth largest bank would help to stop opaque private equity invasion in the EU?

  • 3.
  • At 10:21 AM on 23 Apr 2007,
  • John wrote:

Barclays is taking the opportunity of relocating to a lower tax environment. (25% vs 30%)
Shame on all those people who complained about excessive profits and good for the Dutch taxpayer.

It is interesting that you have commented on how good it is to see a British company making the first move and acquiring a substantial business rather than waiting to be acquired.

However, the sad truth here is that Barclays would no longer be British. The HQ would be in the Netherlands and the lead regulator would also be there. From a nationalist point of view, this is more of a reverse take over, although that is really besides the point as far as investores are concerned.

As for the other comments posted here about what will be good for consumers, there are grounds to be optimistic. Santander has made a good start to improving customer service and back office systems at Abbey that suggest it will improve the average retail customer experience over time.

  • 5.
  • At 10:48 AM on 23 Apr 2007,
  • Dick wrote:

Shashank Gorg makes a good point..

RBS in particular has been a prolific lender to the Private Equity Industry which of course has little or no impact on national economic growth yet in a report last year on the Scottish Risk Equity Market didn't get even get a mention because its simply not active in this sector.

  • 6.
  • At 11:15 AM on 23 Apr 2007,
  • Matt wrote:

The price of 36.5 is probably slightly below what the market expects but it still higher than many people thought possible for an initial bid, there is probably scope to raise this to 37.5 if RBS decided to intervene.
Looking at a bit more detail the press release also details the expected cost savings all of which are very realistic almost even conservative.
A bid that would make even hard nosed politic manipulators proud and which will almost certainly succeed now.

  • 7.
  • At 11:30 AM on 23 Apr 2007,
  • Myles wrote:

In Response to Tim, the lead regulator would be the FSA in london as it was decided it was to complicated to have regulation split over the two.

It can be found on the reuters article on the merger

  • 8.
  • At 12:23 PM on 23 Apr 2007,
  • Bob wrote:

Is it not legitimate for the Netherlands to worry that ABN, once broken up by RBS, would no longer so avidly support the export and trade of Dutch companies in Asia and Latin America? Whereas ING can provide that support in Central & Eastern Europe, ABN done so outside Europe.. and the Netherlands still contains a lot of shipping, marine services, construction and dredging groups who depend on it. With Barclays that would all remain intact, and it isn't protectionism to look after vital national interests. I expect Barclays' proposal to win out over the break-up options.

  • 9.
  • At 01:24 PM on 23 Apr 2007,
  • Matt wrote:

John,

The new Barclays would continue to pay tax in the UK, so the UK govt would see tax receipts increase by several Bn a year.

  • 10.
  • At 04:22 PM on 23 Apr 2007,
  • Dick wrote:

Bob - although I agree that RBS's breakup plan is likely to lead to less support for Dutch industry I'm not convinced Barclays would be all that different. It is a British bank after all and they all have pretty much the same mentality.

Incidentally does ABN have any form of "venture capital" division? If so RBS would kill that stone dead overnight.

  • 11.
  • At 08:29 PM on 23 Apr 2007,
  • John Deards wrote:

How ironic that Barclays Bank, the archetypal English financial institution for hundreds of years, should choose St. George's Day on which to go Dutch.
After 40 years with Barclays I must now regretfully consider moving my account to an English-based bank, with its head office in England and an English-based call centre.
Are there any? Any suggestions?

  • 12.
  • At 12:34 PM on 24 Apr 2007,
  • Mark wrote:

It never ceases to amaze me that as soon as the big companies want to 'save' money or make a deal more acceptable, they offer the jobs offshore; no care for the thousands of dedicated and highly skilled workers here for whom a takeover is yet another nail in the coffin of the IT industry. The priority is not service anymore or loyalty to staff, but cost, and we simply cannot compete with the Offshore companies.
Once the current Offshore companies start to raise their fees, the focus will move to other parts of Asia with an infinte workforce that can do the deal cheaper, regardless of the service provided. How many more industries are going to be destroyed because of the greed of the city and the goverments ineptness? Sometime in the future someone in power will realise that it is not and never was the way forward. Only the big fish win. there will be many, many innocent losers. This affects everyone, because soon there wont be enough unskilled jobs to go around for the out of work professional trying to keep their and their families heads above water and have some kind of living.
One last point. Anyone who has worked in a large organisation knows that they constantly ask for loyalty and for their 'family' to work all the hours regardless of outside commitments. But, when it suits, they forget the loyalty of their immediate 'family' members in order to increase revenue for their more important 'shareholder family' members.

  • 13.
  • At 02:12 PM on 24 Apr 2007,
  • Scott MacLean wrote:

In response to John Deards' enquiry for an English based bank, with it's head office in England and an English based call centre - if by English you mean British - how about RBS???

  • 14.
  • At 01:58 AM on 25 Apr 2007,
  • paul wrote:

It seems that share-holders are receiving a lot more attention than the other stake-holders in this debate. Should short term price be the only guiding criteria? It seems hedge funds and other break up proposals are mainly interested in short term financial gain. Barclays and ABN AMRO going together creates a formidable competitor for the other banks rather than eliminating both of them in another scenario... There are many long term strategic considerations for the financial industry in a game which only just started!

  • 15.
  • At 12:16 PM on 26 Apr 2007,
  • Frank Dinger wrote:

quote

The concept of the British, French or German bank would wither and the concept of the European bank would be born.

unquote

I would welcome the above .......because it probably would speed-up the process of Britain accepting the EURO as its currency and hence its position as a truly european country ( or better ;countries) shedding once and for all its island -and imperial legacy of 'we know best'

Frank northern Scotland

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