Be Careful What You Wish For: Barclays + ABN AMRO?

Implications: Barclays is engaged in exclusive talks with ABN AMRO that could yield the largest ever financial institutions M & A deal. A combination would make the combined firm a bigger global player both geographically and by product line coverage. The burr under ABN AMRO's saddle to sell out is shareholder impatience over below par operating results and weak gains in its share price.


Analysis: If this deal takes place, the chances of a win-win for both Barclays and ABN AMRO shareholders is not much better than a lottery ticket. The combination dynamics of a whole bank transaction are far from ideal for Barclays.

The best chance for Barclays to succeed would be to do a deal with the rights to sell off the parts of ABN AMRO that it is not well positioned to manage. For starters, the US  subsidiary, LaSalle Bank in Chicago, would be appealing to Citibank, Bank of America, and possibly Wells Fargo.The Latin American franchise would be appealing to Citibank, Banco Santander, and BBVA.

Barclays would be far better positioned to digest and produce operating leverage with what is left: a pan European franchise in both Western and Eastern Europe and operations in a basket of emerging markets.

If another whole bank bidder shows up, that will change the valuation dynamics. Or, ABN AMRO could decide to manage the breakup itself  and auction off its parts in the hopes of generating a higher overall valuation. Either way, ABN AMRO will find it hard to remove the seller's tag that it now wears.