ABN AMRO - Barclays Deal Has Company: Is Three a Crowd or a Winner?

Implications: This article refers to a potential investigation by the US Dept. of Justice into ABN AMRO's US subsidiary, LaSalle Bank. Previously, ABN AMRO settled an anti-money laundering probe in 2005 and paid a fine of US$80 million. Meanwhile the clock of exclusivity for Barclays (NYS:BCS) negotiations to submit a bid to ABN AMRO continues to tick, and expires on April 17th. Other suitors, such as Royal Bank of Scotland, are rumored to be ready to jump into the bidding arena.

Analysis: The chase to buy ABN AMRO has attracted at least one other bidder. Actually, the bidder is a three way combo offer from Royal Bank of Scotland, Banco Santander, and the Dutch bancassurer Fortis (TOR:FTS.TO). This bid would split ABN AMRO into three discrete segments, potentially drawing a bid where the sum of the parts are worth more than the whole franchise.

Such an outcome is quite possible because each of the three partners in the bidding would be able to carve out more efficiencies and re-leverage the ABN AMRO segments within their respective geographies and lines of business than Barclays. For such a bid to be successful, ABN AMRO shareholders would probably want to see a higher bid than one from Barclays.

One possible scenario for splitting ABN AMRO up between these three firms would be as follows:

1. Royal Bank of Scotland would take on the US bank franchise and combine it with its US operation (RBS America now includes Citizens Financial Group). The result would propel the combined operation up to #6 in the US behind Wells Fargo. RBS would also take on the global wholesale bank operations and meld them into its global banking platform. This latter operation would be appealing in all major geographies for RBS.

2. Banco Santander would take on ABN AMRO's Latin American franchise in 8 countries, combining it with its existing operation and elevating it well above BBVA's position in this region. Banco Santander would also be a candidate to take on ABN AMRO's  Italian subsidiary, Antoveneta ABN AMRO, which was acquired in 2006.

3. Fortis would take on the Dutch-based banking franchise that serves The Netherlands and continental Europe. Consolidating this operation into Fortis could possibly utilize ABN AMRO's European operating platform as its presence is larger than Fortis' banking operation. The combination of this part of ABN AMRO and Fortis would raise the bancassurance gambit with ING.