Sir Fred Goodwin, the Royal Bank of Scotland boss, is turning defeat in battle to advantage in war. Being beaten by Bank of America to ABN Amro’s US bank, LaSalle, is a blow to Goodwin’s plans to beef up RBS in the US. But at least that leaves ABN with a heap of cash. Thanks to that, Goodwin and his partners bidding for ABN have been able to put even more ground between themselves and a rival approach from Barclays.
The consortium isn’t only offering more than Barclays by sticking with its €71 billion (Rs3.95 trillion) bid for ABN. It has also upped the cash element of its offer by nearly €10 billion to €66 billion. That will be even more appealing to the hedge funds which make up 40% of ABN’s investors, according to some estimates.
Barclays is offering €12 billion in cash, split between its own and ABN investors. But RBS isn’t home clear just yet.
Goodwin’s revised bid raises a number of questions. Without LaSalle, RBS’ main prize is the Dutch group’s wholesale and investment bank, an underperforming business for which it is paying, at about 20 times this year’s earnings, a full price. NIB Capital, another Dutch wholesale bank, sold two years ago for 11 times earnings.
RBS will get marginally lower returns too, although at 13.2%, they are still above the bank’s target. Stripping out LaSalle has reduced the cost savings and revenue synergies Goodwin thinks he can get from ABN’s wholesale bank.
What’s more, RBS is left in the strange position of taking the lead on the deal, and being the first port of call for regulators, while taking the smallest share of assets. That puts a good deal of faith in the fair-play agreement RBS has drawn up with its partners, Spain’s Santander and Belgo-Dutch Fortis.
Still, this need not derail RBS, as long as its shareholders remain supportive. Indeed, it is Barclays’ shareholders who appear more anxious over the possibility of it raising its bid. Without that option, Barclays’ best hope of getting ABN may lie with the Dutch regulator, who has yet to approve the consortium’s deal.
Given that the UK’s FSA has already backed RBS, Barclays shouldn’t get its hopes up too much.