Amsterdam: Shares of ABN Amro Holding NV surged to a record as the largest Dutch bank becomes a takeover target for companies including Barclays Plc.
ABN Amro’s stock rose as much as 10% in Amsterdam, valuing the company at 57 billion euro (Rs3.24 lakh crore), before settling lower.
Barclays, UK’s No. 3 bank, said it will make a statement “clarifying the position” before business opens on Tuesday after a person with knowledge of the situation said the two companies were in talks.
If a deal does go through, Barclays, which doesn’t have any retail and commercial banking presence in Asia-Pacific except for India, can tap ABN Amro’s markets in India, Singapore, Hong Kong, Taiwan, China, Pakistan, Indonesia and Malaysia. Barclays’ strongest profit growth in the second-half of 2006 came from international retail and commercial banking, where pretax profit increased 59%.
Barclays CEO John Varley told analysts a month ago that he wanted the London-based bank to grow “aggressively” and would consider purchases to enter emerging markets. The bank might offer about 60 billion euro for ABN Amro, according to Keefe, Bruyette & Woods Ltd analyst Jean-Pierre Lambert. That would be Europe’s biggest financial-services merger.
“Our exposure to emerging markets is still quite low,” Varley, 50, said on a conference call when the bank reported earnings on 20 February. “We would like to increase our exposure to them.”
ABN Amro’s consumer- banking clients in Asia region rose by 18% to 3.3 million last year and the number of credit cards issued increased by 19% to 2.8 million, with India and Greater China driving growth, according to the bank.
Barclays plans to start a wealth-management unit in India this year. ABN Amro, which has 28 branches in India, said last week it may hire as many as 2,000 more employees in the country to provide global support services in the next 12 months. ABN Amro was the top merger adviser in India last year, arranging 36% of the record $31.5 billion of deals. The Dutch bank also operates a mutual fund and offers securities trading and retail stock brokering services for individual investors. Barclays employs 3,000 people in the Asia-Pacific region, compared with more than 14,000 at ABN Amro. More than four-fifths of Barclays’ employees in the region work with the investment banking division.
In terms of total assets and net profit, ABN Amro which has been in India since 1920, is the fourth-largest foreign bank in India after Standard Chartered, Citibank and HSBC.
Initially, the Dutch Bank was operating through two branches in Mumbai and Kolkata, focused only on diamond trade. It acquired the retail business of Bank of America in 1999 and since then it has been focusing on the retail sector aggressively, though the diamond trade remains a strength. It now operates from 16 Indian cities and has a customer base of about 1.5 million.
ABN’s Indian assets grew by 52.90% last year to Rs23,539 crore.
Among all foreign banks, ABN Amro reported the highest loan growth last year at 53.24% to Rs15,073 crore. In contrast, Citibank’s advance portfolio grew by 35%, that of Standard Chartered 20.56% and HSBC 33.21%. Its deposit base too grew at a healthy pace of 68.86% to Rs11,863.77 crore.
ABN Amro’s net profit last year grew by 23.79% to Rs241.68 crore on the back of a 48.10% growth in total income (Rs1,988.59 crore) and 48.94% growth (Rs1,351.50 crore) interest income. Its operating profit last year was to the tune of Rs581.93 crore.
On key financial parameters such as return on assets and return on net worth, the Dutch Bank has mixed fortunes.
For instance, its return on net worth which was 18.66% in 2004, slipped to 15.63% in 2005 but rose to 16.47% last year. Its return on assets, however, has been progressively slipping — from 1.84% in 2004 to 1.27% in 2005 and 1.03% in 2006. Its net non-performing assets have steadily been coming down during this period — from 0.88% in 2004 to 0.35% in 2005 and 0.11% in 2006.
“It has been aggressively growing in mortgages and credit-card business. Following this, its capital adequacy ratio has fallen from 13.48% in 2004 to 10.44% last year. If it wants to maintain the growth momentum, it needs to bring in fresh capital,” said a banking analyst with a foreign brokerage. Another area where it has been pushing for new business is micro-finance.
Over in Amsterdam, CEO Rijkman Groenink is fending off calls from investors, including TCI Fund Management, for ABN Amro to be broken up as he works to cut expenses on last year’s purchase of Italy’s Banca Antonveneta SpA and loan losses in the US, Latin America and Taiwan.
“The perception is that ABN Amro has been under some pressure for quite some time, so Barclays may not be the only potential predator out there,” said Jeremy Batstone, an equity strategist at Charles Stanley & Co. in London. “We’re really in the first foothills of what could be quite a prolonged process.”The Wall Street Journal
A staff writer contributed to this story.