Abstract

In October 2007, RBS led consortium of Fortis Bank and Banco Santander had acquired ABN AMRO for US$ 100 billion after winning the bidding war with Barclays. The deal was the largest acquisition in the global banking industry till that time. RBS went ahead with the deal in spite of visible signs of looming sub-prime crisis. ABN AMRO was one of the largest financial institutions in the world and had significant presence in European nations. However, as a result of sub-prime crisis, asset values crashed and credit markets tumbled. Crash in asset valuations led to huge write downs for RBS. Acquiring ABN AMRO by paying large portion in cash severely strained RBS balance sheets. As solvency of RBS was threatened, the UK government stepped in to help it out resulting in the UK government becoming majority stake holder of RBS. ABN AMRO’s acquisition coupled with sub-prime crisis also led Fortis into trouble. Fortis customers lost confidence in the bank resulting in huge withdrawals. As Fortis was one of the biggest banks in the Netherlands, Belgium, and Luxemburg, those governments came to its rescue from bankruptcy. Each government contributed certain amounts to Fortis in return for stakes in its operations in their respective countries. Later, majority stakes in Belgium and Luxemburg operations were sold to the French banking giant, BNP Paribas. Banco Santander was the only bank in the consortium which did not incur any losses after ABN AMRO’s acquisition. The bank sold some of its acquired operations within few days after announcing the acquisition which brought down its acquisition cost significantly. As Spanish banking regulator did not allow Spanish banks to indulge in risky banking practices, Banco Santander’s exposure to the sub-prime related assets was lower which saved it from incurring any losses.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Study the rationale behind the acquisition of ABN AMRO by the RBS led consortium.
• Analyze the impact of subprime crisis on the consortium members after ABN AMRO's acquisition deal.
• Critically examine and arrive at an appropriate valuation for ABN AMRO.
• Appreciate the importance of due diligence and conservative valuation of an acquisition deal in the light of deteriorating macroeconomic environment.

Keywords

ABN AMRO, Royal Bank of Scotland, Fortis, Banco Santander Central Hispano SA, Subprime Crisis, Banca Antonveneta SpA, Consortium Banks, La Salle Bank, Bank of America, Mortgage Backed Securities, Acquisition, Global Banking Industry, Integration Expenditure, Wholesale Banking Business, Asset Management, Retail Banking, Corporate Finance, Debt Management, Merger Valuation, Financing of Acquisition, Risk Management, Synergies from the Merger, Asset Devaluation, Shareholder Value, Regulatory Environment, Collateral Debt Obligations, Credit Default Swap