Rbs – Abn Amro Acquisition

Background ABN AMRO had come to a crossroads in the beginning of 2005. The situate had still not come close to its own target of having a return on equity that would put it among the top 5 of its peer group, a target that the CEO, Rijkman Groenink had set upon his appointment in 2000. From 2000 until 2005, ABN AMROs stock price stagnated. Financial results in 2006 added to concerns about the blasphemes future. Operating expenses increased at a greater ramble than operating revenue, and the efficiency ratio deteriorated further to 69. 9%. Non-performing loans increased considerably year on year by 192%.Net profits were only boosted by sustain asset sales. There had been some calls, over the prior couple of years, for ABN AMRO to break up, to merge, or to be acquired. On February 21, 2007, the call came from the The Childrens Investment Fund Management hedge in fund which asked the Chairman of the Supervisory Board to actively investigate a merger, acquisition or breakup of ABN AM RO, stating that the current stock price didnt reflect the sure value of the underlying assets. TCI asked the chairman to put their request on the agenda of the annual shareholders meeting of April 2007.Events accelerated when on March 20 the British bank Barclays and ABN AMRO both confirmed they were in exclusive talks about a possible merger. A consortium of banks, including RBS, Belgiums Fortis, and Spains Banco Santander also proposed an acquisition and finally won the tell apart. The RBS-ABN Amro deal is also unusual in that it led to the fall of not just one buyer but two the Belgian-Dutch bank Fortis was nationalised by the Dutch administration last year to avert a liquidity crisis. On 22 April 2008 RBS announced the largest rights issue in British corporate history, which aimed to raise ? 2billion in immature capital to offset a writedown of ? 5. 9billion resulting from the bad investments and to shore up its reserves following the purchase of ABN AMRO. On 13 October 200 8, British Prime Minister Gordon brown announced a UK government bailout of the financial system. The Treasury would infuse ? 37 billion ($64 billion, 47 billion) of new capital into Royal verify of Scotland class Plc, Lloyds TSB and HBOS Plc, to avert financial sector collapse. This resulted in a total government ownership in RBS of 58%. As a consequence of this rescue the tribal chief executive of the group Fred Goodwin offered his resignation, which was duly accepted.In January 2009 it was announced that RBS had made a loss of ? 28bn of which ? 20bn was due to ABN AMRO. At the same time the government converted their preference shares to customary shares resulting in a 70% ownership of RBS. The 452-page report by the FSA into what went wrong at RBS found that the bank conducted inadequate due diligence into ABN, on the hind end of just two lever arch files and a CD. The board was fully aware that it could undertake only extremely restrain due diligence in respect of the ABN Amro acquisition.However, it appears to have treated the fact that such constraints on due diligence are normal in any contested bid as, at least to some degree, entitling it to disregard this impediment. Once they started to look around ABNs trading books after the acquisition, they realised that a lot of their businesses, particularly what you would call baby-sit businesses where valuations were based on assumptions, were based on forecasts that were super aggressive, said one senior former RBS trader. The woes at RBS were in stark contrast to its consortium helper Santander, which had acquired businesses that proved relatively simple to separate.Quite how well Santander had done out of the deal, became only too apparent on November 8 when it announced it was selling Antonveneta to Banca Monte dei Paschi di Siena for 9bn, 2bn much than the price it had bought it for less than a month earlier. On 9 February 2010, the businesses of ABN AMRO acquired by the Dutch state were legal ly demerged from the RBS acquired businesses. This created two separate banks within ABN AMRO Holdings, The Royal Bank of Scotland and the new entity named ABN AMRO Bank, each licensed separately by the Dutch Central Bank TransactionRBS (UKRBS), Santander (USSTD), and Fortis offered 30. 40 euros in cash and 0. 844 RBS share for each ABN Amro share, valuing the Dutch bank at 38. 40 euros a share. The deal was valued at 67 billion. Barclays offer for ABN AMRO was 67. 5bn, Our philosophy is to offer as much cash as possible, said Fred Goodwin, chief executive of RBS, at a press conference. He said the banks were able to offer more cash after performing limited due diligence on ABN Amro. Throwing in more cash heightened the pressure on ABN to back the consortiums offer.Shareholders accepted a 71bn euro ($98. 5bn ? 49bn) offer to clinch Europes biggest ever banking coup detat and Barcalays withdrew its bidding. Breaking down the costs Under the plan, RBS would pay 27. 2 billion euros to get ABNs North American, Asian, Latin American (except Brazil), investment and corporate banking arms. Fortis would pay 24 billion euros to get ABNs Dutch, private-client and asset- anxiety businesses, and Santander would fork over 19. 9 billion euros for ABNs Brazilian and Italian presence.The three banks would share other assets, such as ABNs head might and its private-equity portfolio. Theyd sell the stake in Capitalia , the Italian bank thats recently agreed to be bought by UniCredit . The break-up of ABN will involve 4,500 branches across 53 countries and unravelling businesses ranging from cash management operations in Asia to retail banking in Brazil. RBS is expected to take its wholesale and investment banking business and its Asian operations while Santander will get ABNs Italian and Brazilian units, and Fortis its Dutch business and wealth and asset management operations.Royal Bank of Scotland acquired the business most affected by the market turbulence of the sub-prime crisis. Objective The banks aphorism a 4. 23 billion euros in cost savings by the end of 2010, and said their profit will be boosted by an additional 1. 22 billion euros of revenue. They said the deal is expected to increase Fortiss earnings per share by 4% by the end of 2010, lift RBS EPS by 7% and improve Santanders EPS bsy 5%.