The Acquisition of ABN AMRO (B)
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Case Code: BSTR346 Case Length: 23 Pages Period: 2007 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.400 Organization: ABN AMRO, Royal Bank of Scotland, Fortis, Banco Santander Central Hispano Industry: Banking, Financial Services Countries: UK, Belgium, Spain, The Netherlands Themes: Mergers, Acquisitions, Strategic Alliances |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Almost all their losses are in the subprime markets in America and related to the acquisition of the bank ABN AMRO. And these are irresponsible risks which were taken by a bank with people's money in the United Kingdom."
- Gordon Brown, Prime Minister, UK, in reference to RBS, in January 2009.
"The acquisition was fine in a bull market, but in a market that was in a rapid downturn, there was a question mark as to whether we could afford it and whether we should afford it. That led to doubts by shareholders which meant we had to be supported by national governments to support our balance sheets."
- Rick Denton, Director, Marketing & Business Development, Fortis, Guernsey, UK, in April 2009.
"The deal was overpriced, very badly timed and relatively indefensible."
- Alex Potter, Collin Stewart, in October 2008.
Introduction
On January 19, 2009, hard on the heels of an announcement by the UK-based Royal Bank of Scotland (RBS) of a potential £ 28 billion loss for the year 2008, the bank's stock price plunged by 66%. The price fall led to a loss of £ 9 billion of its market capitalization. RBS shares closed at £ 11.6 from its previous day closing price of £ 34.7. Till early 2009, this was the largest loss declared by any company in British corporate history. The unprecedented loss triggered criticism about RBS's management from its shareholders and the regulators. RBS attributed most of the losses it had incurred in the fiscal year 2008 to its acquisition of ABN AMRO in late 2007.
RBS had led a consortium of banks comprising Dutch-Belgium banking major Fortis and Spain's Banco Santander in early 2007 to acquire ABN AMRO. In October 2007, the consortium acquired ABN AMRO bank for US$ 100 billion. The acquisition was the largest in the banking industry till then.
As per the deal, RBS got ABN AMRO's wholesale banking and Asian operations, Fortis got the Dutch operations plus the wealth and asset management businesses, and Banco Santander got the Brazilian and Italian operations. For the deal, the consortium agreed to pay 93% in cash and the rest in the form of RBS shares.
The acquisition cost RBS US$ 38.25 billion, Fortis US$ 33.75 billion, and Banco Santander US$ 27.99 billion. The acquisition of ABN AMRO led Fortis into trouble too, resulting in its CEO being ousted in July 2008. The acquisition had depleted the equity capital of Fortis to a great extent and it was partially nationalized in September 2008. In October 2008, the government of the Netherlands nationalized the Dutch activities of Fortis, including the Dutch operations of ABN AMRO, in return for € 16.8 billion6 which was meant to ease the company from the capital crisis it was facing because of the global financial crisis...
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