Hong Kong: Barclays stands to increase its Asian operations four-fold if it buys ABN Amro, picking up a big footprint in regional credit cards and the fast-growing Indian and Pakistan markets in the process.
Barclays, which has roughly 3,000 staff in Asia, is in talks for an $80 billion takeover of Dutch rival ABN, which had nearly 14,000 staff in the region at the end of last year.
Much of ABN’s staff is in its large consumer and commercial banking operations, particularly in increasingly important markets like China and India, where ABN will open its 28th branch this year. The bank also had 2.8 million credit cards in Asia at the end of 2006, up 19% from 2005.
“The credit-card business of ABN will be of interest to Barclays,” said Jean-Pierre Lambert, an analyst at Keefe, Bruyette & Woods. “There is limited overlap between ABN and Barclays in Asia.”
Bad debt provisioning
But ABN’s Asia profit was only 111 million euros (Rs644 crore) last year, down 46% from 2005 as it was stung by higher bad debt provisioning for Taiwan credit cards.
ABN’s disclosed Asia profit, which includes West Asia but does not include private banking, investment banking and wealth management, only accounted for 2.4% of the bank’s total annual profit.
Asia chief executive Jeroen Drost told Reuters in November that the region makes up about 6% of its total revenue.
A takeover would create a global bank worth more than $175 billion.
Barclays’ regional CEO Robert Morrice also has aggressive performance targets for Asia.
Morrice has global president Bob Diamond looking over his shoulder, as his hard-charging boss expects Asian investment banking revenues to grow at least 25% a year.
It is also pushing to become a global top three player in private banking, recently hiring a new head of Asia wealth management from Credit Suisse as China and India have become among the world’s fastest-growing wealth markets.
ABN, which has a regional private banking business, would be a big help to Barclays in those two markets.
India is perhaps the crown jewel of ABN’s Asia business, as it has been the first foreign bank to set up a retail brokerage business and it will increase the number of private banking offices there to eight by the end of the year, up from five in 2006.
ABN is also applying for local incorporation in China, along with banks such as Citigroup and HSBC, which will allow it to tap the retail market for the first time.
And it is also set to become a major player in one of Asia’s hotter “frontier” markets: ABN is buying Pakistan’s Prime Bank for $227 million, increasing its presence in a country where the economy is growing at 7%.
The ABN deal may mark the return of Barclays to the equities and M&A business, which it dropped 10 years ago, and complement its strong regional fixed income and derivatives units.
ABN Amro, which runs an equity capital markets joint venture with family-held investment bank Rothschild, ranked ninth in non-Japan Asia Pacific investment banking revenue last year, 10 spots ahead of Barclays Capital, according to market data firm Dealogic.
But there is some doubt among rival bankers as to whether Barclays will hang on to the equities and M&A business, although executives have recently indicated that they are willing to reverse their previous stance and enter those markets.
Also, as one British-based investment banking rival said his firm will be “very opportunistic” when looking at chances to poach staff from ABN, and experienced Asian bankers are in high demand.