Barclays enters exclusive talks with ABN Amro

Barclays enters exclusive talks with ABN Amro
By Peter Thal Larsen and Jane Croft in London and Ian Bickerton,in Amsterdam
Copyright The Financial Times Limited 2007
Published: March 20 2007 02:00 | Last updated: March 20 2007 02:00


Barclays is in exclusive talks about a takeover of ABN Amro that would propel the British bank into joining the world's largest financial institutions.

After intensive negotiations at the weekend, ABN Amro executives agreed to a 30-day period of exclusive talks. In simultaneous statements, the two banks said the talks were "early and exploratory" and the result of "careful consideration to create a highly complementary partnership".

A deal would be Europe's largest cross-border transaction to date and transform the continent's banking landscape.

The combined bank, which would have a market value of more than £80bn, would combine the Dutch bank's operations in Brazil, the US, the Middle East and Asia with Barclays' expertise in investment banking, fund management and credit cards.

ABN Amro and Barclays have held discussions at least three times over the past seven years. However, the most recent talks have been given increased urgency by a campaign by The Children's Investment Fund, an activist hedge fund, which has won support from investors to break up or sell ABN Amro.

The two banks are understood to have agreed the basic outline of a transaction. Barclays' management team, led by John Varley, chief executive, is expected to keep most of the top jobs in the combined bank, which would be expected to retain its main share listing in London.

However, Barclays may be willing to keep a large head office in Amsterdam and give the Dutch central bank a role in regulating the combined bank in order to win agreement.

The exclusive talks make it less likely that other European bankswill launch rival offers. While banks such as Santander of Spain and Royal Bank of Scotland are interested in parts of ABN Amro, few appear to have the appetite to absorb the whole bank. ABN is understood to have held detailed discussions about a merger with Dutch rival ING, though these are now on hold.

A key question will be whether Barclays can negotiate a deal that pleases both sets of shareholders. The lack of geographical overlap between the two banks will limit cost savings.

John Paul Crutchley, analyst at Merrill Lynch, estimates Barclays could generate €1.4bn (£959m) in savings by bringing ABN Amro's cost-income ratio into line with the industry but the bank would need to find further savings if the deal was to meet its acquisition criteria.

The greatest overlap is expected to be in the two banks' investment banking operations. People involved in the transaction pointed out that Barclays Capital generates an average of £475,000 in revenues per employee, while ABN Amro's wholesale bank generates revenues per employee of just £280,000. However, Antony Broadbent, an analyst at Sanford Bernstein, said: "Many of the business areas ABN Amro would add are precisely the areas Barclays Capital has been avoiding."

ABN Amro shares rose almost 10 per cent to €29.70 as investors anticipated a bid. Barclays shares closed down 5.5p at 677p.