RBS wins - or does it?
Long long ago, in a world where central banks could control interest rates and commercial banks lent to each other as a matter of routine, two British banks began a titanic contest to win control of ABN Amro, the pride of Dutch finance.
Today, in this new world of poisoned money markets ruled by fear and mistrust, the gruelling struggle may well be over, in all but name.
A consortium led by Royal Bank of Scotland, whose other members are Fortis of Belgium and Santander of Spain, was already well ahead. Its €70bn-odd offer is worth vastly more than Barclays' bid - because at a time when all institutions are hoarding cash, RBS's readies are seen by investors as much more desirable than Barclays' shares.
Within hours, RBS and partners should clear their last formal obstacle. Europe's competition authority is expected to announce that it is placing no prohibitive conditions on the takeover taking place.
At that moment, Barclays' board would privately recognise that it's game over - although they may not admit as much publicly till Friday or even Monday (just in case RBS encounters some unlikely last minute hitch before its offer closes in a formal sense).
As and when RBS and co carry off ABN, it will be a big moment. Barclays will have to answer the what-now question. Having shouted very loudly that it saw its future as a global giant, pumped up by ownership of ABN, it needs to explain why its shareholders should feel just as excited by its growth prospects as a rather smaller institution.
That said, Barclays' failure was arguably in the interests of its owners. As I wrote on September 7, this summer's mayhem in the banking industry made it questionable whether it was remotely rational for any bank to add to its management burden by buying another bank.
A few months ago it may have seemed heroic of Barclays to initiate the largest ever cross-border banking takeover of all time. Now it seems hubristic.
So what of RBS? It bravely becomes significantly bigger in global investment banking and commercial banking at a time when retrenchment might seem more appropriate.
Investing against the cycle is often a recipe for success. But would RBS have launched this deal all those months ago if it knew then what it knows now about the fragility of confidence among providers of credit?
RBS is a legendary cost-cutter. And doubtless it will display those talents to the full in the integration of its bits of ABN, after that bank is broken up and shared out between the troika.
However it is very difficult to argue that the banking trio is obtaining assets from ABN on the cheap. Note that RBS's share price has fallen by 15% or so since the consortium said in the spring that it wanted to buy ABN, while the consortium's largely cash offer for ABN was actually nudged up.
The 15% fall in RBS's share price may well be a proxy for the fall in the intrinsic value of ABN, given what has happened to banking markets over the past couple of months. And the part of ABN that has surely been most hurt would be what RBS will end up owning. That is the operation that deals with the bruised clever clogs of private equity, hedge funds, other banks and the treasury departments of companies.
RBS's redoubtable chief executive, Sir Fred Goodwin, would rather stick pins in his eyes than overpay. But he faces his toughest ever challenge to prove this is the right deal at the right time.
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Barclays by keeping its offer on the table prevented the consortium from altering the terms of their offer citing material adverse events. While this was good for ABN's shareholders, it may not have been the same for the consortium given recent events and ABN's preceived exposure to the sub-prime debt market. Barclays in having to walk away just clutching a cheque for the break up fee, may yet prove a blessing in disguise. If Mr Varley has some thinking to do about his vision for the bank without ABN, at least he, unlike Sir Fred, will be able to do so without any pins in his eyes.
And the relevance of this to the real UK economy is what exactly?
The only thing that I see might benefit us is that it will hopefully lead to calls for the setting up of regional banks such as they have in places like Scandinavia. They tend to work with Govt and industry in developing their economies. As far as I can tell RBS and their ilk are only interested in themselves. They're too big now... Perhaps the EU should insist on breaking them up!
Barclays may consider itself little lucky on getting away with this deal without much loosing but long term future may be volatile for them from here!
Robert, just like your employers you can not put anything other than a negative spin on success unless of course it is for Nu Labour.
Fred the Shred has wiped the floor with Barclays and RBS - yes RBS - note which country that is, has won.
"Investing against the cycle is often a recipe for success"
We'll just have to wait and see how things pan out. If share prices recover and RBS drives through synergies similar to those it has achieved with other takeovers, this could well turn out to be the best bit of business yet by Goodwin.
If not, then RBS will have overpaid however it will still have attained the behemoth status that Goodwin obviously craves with an acquisition which complements its existing setup rather than overlapping it - i.e. more baskets for all those eggs. Plus they will pick up the proceeds from the offloading of La Salle, which was sold just before the current market turmoil kicked in. These factors will surely enable the enlargened group to "suck it up".
Barclays on the other hand may be vulnerable in either case.
If the last person you comment knew anything about ABN they would have read the latest news release from ABM AMRO Amsterdam.
ABN AMRO has a VERY LIMITED exposure to the subprime segment.
In my opinion RBS shareholders will do very well from the ABN deal, and benifit from the increased depth and scale.
Amsterdam, 17 September 2007
ABN AMRO announces updated outlook for the full year 2007 in connection with the Extraordinary General Meeting of Shareholders on 20 September
ABN AMRO today announces an update on the expected earnings for the year 2007 and our capital ratios.
Based on the results as per August year-to-date, we are on track to deliver an earnings per share (EPS) of approximately EUR 2.30 on an adjusted basis*, notwithstanding the impact of the current turmoil in financial markets on our Global Markets results and continued disappointing performance of Antonveneta.
Due to slightly higher demand for capital from our businesses, our capital ratios may be marginally below our target ratios at the end of the third quarter. We do expect to meet our capital ratio targets, a core tier 1 ratio of 6% and a tier 1 ratio of 8%, by year end 2007 under a normal course of business and following through on our commitment to strict capital discipline.
We are pleased to report that current market circumstances have not resulted in a revision of our loan loss provision forecast. In line with previous statements we expect the loan loss provisioning for our consumer portfolio to increase with the growth of the portfolio and to see somewhat higher levels of provisioning in the commercial portfolio due to the absence of write-backs and releases. ABN AMRO has a very limited exposure to the subprime segment.
ABN AMRO's overall liquidity position remains strong. For clarification purposes: ABN AMRO manages several asset-backed commercial paper (ABCP) conduits, which are diversified in terms of geographical and asset coverage and the maturities of the ABCP are well spread over time. The actual outstanding ABCP as per 13 September 2007 is EUR 51.5 bln, of which EUR 29.4 bln is in multi-seller conduits. All major conduits have been rolled over in the past weeks without any difficulty due to the underlying quality of the assets. It is noteworthy that up to 50% of the main multi-seller conduits can self-liquidate within a 3 month period. Retail savings remain stable. As part of our standard liquidity management process, ABN AMRO maintains a very substantial liquidity buffer to meet all contingent liquidity needs. We continue to monitor market developments, and remain comfortable with our liquidity position.
As a resident of The Netherlands, I could not agree more with Robert Preston's astute remarks.
ABN Amro, formed from two proud and excellent retail banks serving the local Dutch market with extraordinary efficiency, was transformed into a global mishmash with only one common feature, a ubiquitous and overwhelming mediocrity, providing all services to everyone with something well short of excellence.
This was more than adequately reflected in the share price, which bumbled along at around €20 to €24, lagging the other financials until Barclays and the RBS consortium offered far in excess of the market price for ABN Amro.
This was of course nothing short of a miracle for ABN Amro's despairing shareholders, who now stand to receive somewhere around €39 per share.
Now, who on earth wants to offer such a huge premium to the market price of another bank at a moment when the good times for money lenders appear to be disappearing fast? Why indeed do the RBS consortium and Barclays simply not wait for a few months, when they would, most likely, pick up a lame-duck competitor or two at a considerable discount to today's market price?
This deal is good for UK banking customers and the economy for why?
Will this lead to cheaper bank charges especially on FX where RBS / Natwest charge over the odds for transactions abroad.
In my days at Natwest they used to bang on about their Balanced Business Scorecard, whereby the needs of ALL stakeholders were taken into account. Now it seems RBS listen only to the one stakeholder - its major shareholders.
Why are you so negative about RBS? You lack objectivity.
I recall three weeks ago, you suggested that RBS shares would be a prime casaulty to follow N Rock. I saw no such thing - and, surpise, surprise, your comment promptly disappeared from the ³ÉÈË¿ìÊÖ website.
Maybe the ³ÉÈË¿ìÊÖ would like to reinstate that comment, so we can see you've got a bit of a track record in this regard.
Before you say that RBS shares have fallen - perhaps you'd like to compare that drop to the rest of the banking sector to demontsrate your objectivity?
'nuts.
Scamp, this IS relevant to the UK economy.
RBS is a UK company therefore it pays UK tax on it's profits, and UK shareholders (whether individuals or pension funds etc) will benefit from increased dividends.
Robert,
Forget about these Bank issues and concentrate on something under your nose but which isn't even getting a mention. Namely the strike from tomorrow by Post Office Workers. As a small family business (www.cottonpatch.co.uk)this could have a devastating impact. There has been virtually nothing in the press but they could be out for most of a week and then starting again from the 15th.
I have some sympathy with the Post Office workers and with Royal Mail who have been given a tough ride with the government hiving off profitable portions and leaving the unprofitable universal delivery area.
Conduits, SIV's et al- all hidden off balance sheet. James, I think it is valid, given the credit market turmoil of late, to closely scrutinize the wisdom of allowing these investment vehicles to remain behind the curtain.Of particular interest to me would be that , given that much of these concoctions of financial alchemy have no mechanism for liquidation (ie pricing at market)and they represent enormous ammounts of money within the assets held by banks, how can it possibly be prudent to allow these monsters to thrive off balance sheet- hidden from open public scrutiny? In this regard,ABN AMRO, RBS etc are all playing the game- equally susceptible to bouts of investor scepticism and doubt. So I wouldnt be hanging MY hat on a press release asking me basically to "trust us, we are OK".
As a Barclays shareholder I am glad they appear to have lost this titanic battle. It would have been a bridge too far. But they were foolish in thinking they could buy ABN-AMRO in 30 days without other and bigger banks stepping in. However having said this, I do think that Barclays is more of a caring bank in such a situation rather than the clinical cost-cutters of RBS who will add little to the enlarged bank in terms of innovation.
Barclays will still see this as a loss, both in terms of cultural pride and in terms of its ideas for long term growth.
It will be interesting watching from this point on to see how the market performs, and should the dollar get back on its feet, which banks start to sniff around the spread eagle.
with reference to comment number 2 by Scamp in this chain of feedback "and the relevance of this to the real UK economy is what exactly?"
well, for a start, there'll no doubt be some increase in the already BILLIONS of tax sterling paid each financial year by RBSG (all goes into the next budget, as far as I'm aware...). The Integration programmes that follow as a result of any potential deal being done will provide massive contract employment in the IT sector.
But yes, let's conform to the old British idium of chastising success, especially when our top performers look outside of the island for new and exciting business opportunities....
There are many echoes of the NatWest takeover here; ABN has the core of a good bank which has been poorly run by the current board. 24 out of 25 of the NatWest board got the chop - the ABN board can expect the same.
The RBS consortium creates a much better global strategic fit than the unwieldy financial beast that would have been ABN Barclays. Whether RBS has paid too much or not will become irrelevant in the long run. What matters is whether RBS can integrate, cut costs and create business. The track record says "yes" and my money is on Fred.
I still feel Abn and Barclays would be a better force... real strong and rigid...
ABN, Barkleys, RBS etc will see full exposure to its liability as soon as more lenders break the ranks and tell all. they are hiding the detail let me tell you...
Its time... for a crash...
House prices are too high, and yes the gov. can not allow te house price to fall, if it does, who will make money!
Barkleys?? (post 18) hmm perhaps i wont take the prediction of a crash seriously when it is in a post written by someone who cannot spell the name of one of the UK's major banks.
I think one misunderstanding here is the difference in the quality of banking between The Netherlands and the UK. The UK have a lot to learn from the banking systems in The Netherlands. Therefore, to all of you who do not see any additional value to the UK from this deal. Well. wait and see and maybe the UK banking system can see some improvements. Apart from "Pay Wave".
As an independent consultant I worked for RBS for 2 years when it migrated the NatWest Customer Database to its technology platform. No only did we achieve that 6 months in advance of plan and under budget, customers and the market didn't know it had happened until an RBS Press Release informed them.
Not only is RBS very good at integrating businesses into into its model, it engages people who make it happen. The chances of Barclay's achieving that would have been small against RBS's capabilities.
Good luck to them, they're an outstanding example of 'making things happen.'
rbs has paid over the odds..we think barclays wont be to depressed about loosing out// time will tell if rbs has made a good move/
counting down the days until barclays get taken over... my prediction is within the next 3 years. big fish survive, little ones get eaten up...
As a retail customer of RBS I would worry if they replaced the fresh cut flowers on the counters with artificial ones. RBS are doing well and long may it continue.