Rival suitors go courting ABN
Barclays’ audacious move for ABN Amro is forcing many of its competitors to start thinking along the same lines, says Grant Ringshaw
SINCE the late 1990s, the heads of Europe’s biggest banks have flirted with each other, whispering proposals of huge, cross-border unions. Time and again the courtships have failed to come to fruition.
But that could all change. The Dutch bank ABN Amro is now at the centre of a potential bidding war between Barclays and a consortium formed by Royal Bank of Scotland, Spain’s Santander and Fortis, the Belgian bank.
If either Barclays or the RBS consortium succeeds in pulling off a deal it would be one of the world’s biggest financial takeovers and transform the banking landscape.
Any big deal prompts speculation about further activity, but the sheer scale of a combined Barclays and ABN, which has a market value of €62 billion (£42 billion), had forced banks across the world to rethink their strategies to compete with a new force in global banking.
Put simply, the future development of the European banking industry is at a critical point.
Ever since talks between Barclays and ABN Amro were revealed by The Sunday Times four weeks ago, bankers, investors and analysts have been asking: What next?
The blunt answer was provided late on Friday when it emerged that RBS, Santander and Fortis were considering a rival offer to carve up ABN between them.
Until a month ago, the list of potential big mergers would have been a short one. Now there is the possibility of a flurry of activity. Though the RBS consortium’s plans are at a relatively early stage the three banks’ interest will force all major European rivals to at least consider forming their own consor-tia. The other option will be to look for their own merger partners.
“We have yet to see European mega-merg-ers, but if an ABN deal happens it could open the floodgates,” said Antony Broad-bent, banking analyst at Sanford Bernstein.
“If Barclays or the consortium succeeds we could see others follow; there could be a judgment that mega-deals are the way the industry is going and that other banks will feel compelled to get involved.”
Though Barclays has been ABN’s preferred suitor, analysts calculate that a series of other banks, including Spain’s BBVA and BNP Paribas of France could pay more than Barclays, especially if they form a consortium to break up the Dutch bank.
However, for much of the past four weeks, analysts have been playing down the possibility that a Barclays and ABN tie-up would lead to a wave of major mergers.
The logic of this argument is that ABN is simply the latest example of an underperforming bank to be taken out by a stronger rival. In that sense, it is similar in type — but on a bigger scale — to Santander’s £9.6 billion acquisition of Abbey, the British bank, in 2004 and Italian bank Unicredit’s €15 billion takeover of Germany’s HVB a year later.
Many analysts had believed that the more likely result would have been that Europe’s banks will try to bulk up through domestic deals or smaller, bolt-on cross-border acquisitions.
Now, the intriguing issue is whether other bidders emerge as partners in a bid to grab choice ABN assets. Spain’s BBVA is understood to be considering a pitch for ABN, while Unicredit and BNP are thought to be interested in the Dutch bank’s Italian assets.
“If we get a full auction [for ABN] and lots of bidders it may scare enough players and so consolidation will dramatically increase,” said one analyst.
Some observers argue that a Barclays-ABN merger or RBS, Santander and Fortis takeover could force the hands of banking rivals with global ambitions, which could feel in danger of being left behind in the consolidation game.
Bankers say BNP Paribas, BBVA — which recently agreed to buy the American bank Compass for $10 billion (£5 billion) — and Société Générale would look the most exposed.
But pulling off a major deal so far has been difficult. Though there are plenty of European banks in the hunt for acquisitions, there have been few obvious large takeover targets. In addition, most banks have been enjoying record profits, making them reluctant to consider a sale or merger for the time being.
Another option could be that bigger banks turn their fire on medium-sized and smaller rivals in a bid to bulk up. In 2006 alone, European banks were involved in mergers and acquisitions worth $274 billion, according to analysts at Keefe Bruyette & Woods, who predict even more deals in 2007.
And now there are growing signs of pent-up demand. As Merrill Lynch pointed out in a recent research note, mergers and acquisitions in European banking last peaked in 2000 — at the same time as the sector’s profits reached a high. With profits expected to decline slightly in 2007, this could “smoke out” new sellers keen to cash in at the top of the market.
Merrill argues that the most “open” to a deal (see table) include Bankinter of Spain, Northern Rock and Alliance & Leicester in Britain, and Germany’s Commerzbank. Italy is also likely to be a major battleground, where foreign banks are attracted by some of the highest fees in Europe.
Significantly, some observers believe there has been a fundamental shift in the past year in the boardrooms of several big European banks.
“Many banks have run out of road,” said one senior European investment banker. “We have seen a feeding frenzy in eastern Europe and a lot of buying in America.
“Now many realise that there is a race on to become one of the truly global players and that will inevitably mean bigger deals.”