The feeding frenzy surrounding ABN AMRO is a harbinger for a restructuring of the entire Netherlands’ banking sector. Nick Kochan explains.

A ferocious battle for customers based on branding and rationalisation is set to break out in the Dutch market once the current furore over the takeover of ABN AMRO is settled. The country’s largest banks are positioning themselves for what is expected to be a more abrasive banking environment once the tripartite division between the three Dutch majors is shattered. One senior banking source says: “We will all be beneficiaries of the new structure. We will all be under much greater pressure.”

Floris Deckers, the chairman of F. van Lanschot Bankiers, says: “There is over capacity in the Dutch and European markets. There will be a very aggressive push for customers from ABN AMRO by some banks. ABN AMRO customers want predictability and stability, and they are bound to be more open to those advances.”

In the wake of the takeover, the new owners will be under great pressure to consolidate Dutch banking. Two rival predators, Barclays and a consortium led by Royal Bank of Scotland comprising Santander and Fortis, are leading the assault on ABN AMRO. Barclays is offering shares worth €58.7bn and has promised to retain ABN AMRO intact. The consortium is offering a mixture of cash and shares whose total value is €71bn and has proposed the dismantling of the bank among the consortium’s three participants. The Royal Bank of Scotland is widely expected to win the deal.

For many years the Netherlands has had a secure ladder of banking excellence – its banks are more highly rated on average than those of any European country. Top of the ladder, according to Moody’s financial strength ratings, is the co-operative bank, Rabobank. ING Bank and ABN AMRO are on the next rungs down.

Wim Boonstra, chief economist at Rabobank, says that cutbacks and tougher systems will be used to seek to recoup the price that Fortis is paying for its stake in the consortium bid. The Belgian institution is paying some €24bn for its share in the consortium, and was forced to hold a rights issue in September, where it raised €13bn.


The financial and management pressure on Fortis will be intense, says Mr Boonstra. “It will be a difficult operation to split up ABN AMRO. [Fortis] will have a really hard job to make the savings to pay back the price. If I were a shareholder in Fortis I would be very worried whether this is viable.”

Branding issues

The battle for branding is going to be equally tough. Marketing issues will come to the fore as soon as the new structure is created for ABN AMRO, says Mr Deckers. The new owner will need to capitalise on loyalty to the existing brand, in part to maintain continuity to anxious customers, but in part because the local market has little knowledge, or indeed affection, for Fortis. “ABN is significantly larger than Fortis, so who eats whom? Which is the dominant culture that customers will see? What does the snake look like when it has eaten a cow? For some time, at least, it looks like a cow. How is Fortis going to brand the new entity. It has said it is going to keep the ABN brand for retail.”

ABN’s private banking operations will be rationalised around Fortis, which already owns the major Belgian private banking operation Mees Pierson. The new merged operation will have total assets in the Netherlands of some €70bn. Van Lanschot will become the second largest player in the Dutch private banking landscape, with assets worth €20bn. A shake-up in Dutch private banking is inevitable.

“If you are a private banking client, you don’t want to have to move from one system to another. You don’t want your account manager to be shifted from A to B because of an internal organisation. You want stability and continuity, not instability due to internal reorganisations,” says Mr Deckers, who formerly worked for ABN.

ING battle

The battle for brands in the Netherlands is being joined by ING, the country’s second largest bank. The distinction between its domestic retail banking operations, under the Postbank label, and its wholesale and international operations, which are called ING and ING Direct, is about to be removed. ING has announced it is planning to abandon the Postbank name, and use the ING brand across the board.

Mr Boonstra says the strategy carries risks: “Postbank is a very popular brand and many Dutch people don’t realise it is connected with ING. I don’t understand why you phase out a very strong brand. ING will start a campaign to bring the strong points of the Postbank brand into the ING brand. Some people think this is a brilliant move, but if something works why fix it?”

In three or four years, Postbank’s blue will disappear and ING’s orange will replace it, says the analyst. “My gut feeling is that this is ill-judged. This has led to some turbulence in the market. Behind the re-labelling of Postbank is a rationalisation. ING Direct has been very successful. Competition will get tougher over the years to come. There will be tough competition from the ABN AMRO re-organisation.”

The arrival in the Netherlands of Kaupthing Bank, the largest Icelandic bank, will further intensify competition. Kaupthing bought NIBC (formerly Netherlands Investment Bank) in August, after NIBC disclosed that its asset book contained €500m of subprime-related asset-backed securities. The bank took a major hit to its profits in its half-year figures, announced in August.

NIBC’s chief financial officer, Kees van Dijkhuizen, says: “We had to take the loss because of accounting principles.” Kaupthing has acquired an asset book that is clean of subprime-related debt as NIBC’s subprime loan book was sold on to the bank’s largest investor, a consortium led by Christopher Flowers.

Mr Van Dijkhuizen says that NIBC is sufficiently well-known and liked in the local market that Kaupthing plans to let it retain its name and autonomy. “It is a merger rather than a takeover,” he says. NIBC’s Dutch, German and Benelux operations will complement Kaupthing’s UK and Scandinavian corporate finance and lending businesses, says NIBC.

The surge of activity in Dutch banking markets has left consumers on edge, and anxious to find homes in secure and stable banks, says Mr Deckers. The winner of the battle for ABN AMRO will need to move quickly to stem the tide of nervous customers and staff from the bank. Unsettled by the vitriol being displayed by the two bidders for the giant Netherlands institution, analysts say Dutch depositors are starting to hedge their bets by setting up accounts in other banks.

Customer fears

Customers of ABN AMRO may not be doing anything as blatant as queuing outside their banks to withdraw deposits, as their UK counterparts across the North Sea did at Northern Rock, but they are quietly looking around for another home.

Rabobank’s Mr Boonstra says: “Customers don’t like the turmoil. The entrepreneurs that open accounts with other banks fear operational risk during and after the split-up. They fear that the computer systems will go down.” He also says customers are walking out in solidarity with the bank staff. “They don’t like the way that the ABN AMRO staff have been treated. The majority of the staff are opposed to the splitting up of the bank. They are in favour of the merger.”

Customers are uncertain about the future and are prospecting other banks, says Mr Boonstra. “Clients have not completely closed their accounts with ABN, they have simply opened a second bank account with another bank. Some clients of ABN AMRO are re-directing part of their business to other banks. Rabobank has received about 50,000 clients from ABN. Other banks say they have received strong growth.”

The number sounds large, and it should give the new owners cause for concern, but some perspective is necessary. Another analyst who does not wish to be named, says: “ABN

AMRO has between five and six million clients, so the 50,000 that have set up accounts in other banks are not really alarming. Their behaviour is irrational when they argue that their money might not be safe with ABN AMRO. Once the affair is over, and ABN AMRO has new owners, whoever they may be, things will calm down. ABN AMRO will still be a good bank.”

Market volatility

Moody’s senior analyst Lynn Exton confirms the evidence of instability in the Dutch market: “There is a higher propensity for depositors to move their money around. Instability is bound to create movement. That is human nature, although the evidence for this movement is only anecdotal.”

Yet the silent exodus goes on. Private clients of ABN AMRO, the Netherlands’ largest private banking operation, are approaching Van Lanschot, the private bank. Mr Deckers says: “Bank customers are very loyal, but in circumstances like this they are less loyal than they used to be.”

High net worth individuals and privately owned companies are Lanschot’s key customers and Mr Deckers says that they are reacting in different ways to the instability. “Private clients are more instinctive. You have seen some movement by private clients but there will be more to come. The managers of privately owned corporates are more educated and less instinctive. Borrowers from the bank are quite happy. If they are depositors, they look beyond the newspaper headlines. Other banks get entry into boardrooms where before they would not get a hearing.”

ABN AMRO staff are also anticipating a major shake-up and cost cutting. If the Royal Bank of Scotland consortium prevails and Fortis Bank takes over the domestic Dutch operations of ABN AMRO, many of the staff may have left. One bank finance director says: “People are preparing to jump ship. We are noticing many people from ABN AMRO applying for jobs.” Fortis is based on a bancassurance model of banking – namely the combination of banking and insurance – and local staff fear that the new entity will use the insurance model, with a tighter and less personal approach to its banking customers.

Management spotlight

In the wake of the shake-up of Dutch banking, questions have begun to be asked about the management record of ABN AMRO that resulted in its impending takeover. The strategy pursued by chairman Rijkman Groenink comes in for particular criticism. Mr Boonstra is outspoken and highly critical. “The management changed strategy in the domestic market. They did some stupid things with their own staff. For example, everybody received a letter from management outlining whether they were expendable or not.

“This was not very helpful for the sentiment towards ABN AMRO. Its shares under-performed compared with its peers. It made it very clear that it had set a particular target for its share price, and it never made it. Shareholders should have woken up earlier than they did and the chairman of the supervisory board could have acted earlier than he did.

“It focused very strongly on the international operations and neglected the retail market. It closed too many offices and lost market share. Suddenly it started to change and entered again the retail market with some noise and aggression. But there was no steady line. That did not help.”

The bank’s failure to improve its share price was the focus of criticism levelled by TCI, the hedge fund that has promoted the break up of ABN AMRO. TCI wrote a tough open letter to the management earlier this year which showed the extent of shareholder unrest and disappointment. It read, in part: “We believe that it would be in the best interests of all shareholders, other stakeholders and ABN AMRO for the managing board of ABN AMRO to actively pursue the potential break up, spin-off, sale or merger of its various businesses (or as a whole), in much the same way you successfully managed and executed when you were the CEO at Sears.

“We believe that this strategy would not only create significant shareholder value but also would best serve all the stakeholders who otherwise would suffer over the long term from the structurally declining competitive position of ABN AMRO.

“We believe that it would be in the best interests of all shareholders, other stakeholders and ABN AMRO for the managing board of ABN AMRO to cease its current acquisition strategy, which we believe could further erode shareholder value.”

These points are reiterated by a former ABN AMRO banker, who does not wish to be identified: “The board was arrogant and didn’t have a clear strategy. No one knew where it was going. When Mr Groenink took up the job, he was really ambitious and he said we would be one of the top five banks worldwide within a couple of years and the share price would increase dramatically. It is good to have targets, but he was really over-confident. This has been really sad, as the bank has been very successful.”

This former employee tells how Mr Groenink, and his consultants, changed the bank’s structure from one with a regional base to one using strategic business units. The restructuring was a failure and Mr Groenink turned the earlier plan on its head and put the regions back in the driving seat.

“It was back to where it started, but it had lost a lot of face with staff, and it had paid consultants massive sums,” she says.

Cavalier attitude

Mr Deckers comes to the aid of his fellow banker, saying that the bank’s woes cannot be attributed to one individual. “When a guy is down, it is very easy to kick him, even if you do not realise that that is what you are doing. ABN AMRO is not just one guy. The greater problem was the bank’s cavalier attitude towards people. You can have a brilliant CEO, and Mr Groenink was brilliant, but you need people in the back office, and that part wasn’t so good. It is not about bonuses. His predecessors made mistakes, but they would jump through hoops for you.”

The hero of the takeover of the long-drawn-out battle for the Italian Antonveneta a year ago is today blamed for a furore that threatens a long-term restructuring of Dutch banking and even the decline of the country’s entire financial services industry. In a mournful tone, Mr Deckers says: “ABN is a highly professional bank. It is extremely good at trade finance, very good at structured finance and it is good at investment banking in general. That exposure to international excellence is going to disappear from the country and my children will be deprived of the opportunity to learn in a Dutch bank the skills of corporate finance.

“The takeover of ABN AMRO is a big milestone in the marginalisation of the country. It may have been inevitable, but too few people take that view. No politician could have stuck his neck out as a French, German or British politician would have. That sort of aggression doesn’t fit our psyche.”


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