Spain Bank Mergers & Acquisitions (Banco Santander)

Photo: Banco de Santander's old head office building in Santander, northern Spain. Banco Santander celebrated its 150th anniversary in 2007.

With special thanks to Steve Wong for allowing me to use his photo. You can view his photo stream on flickr.com via this link: http://www.flickr.com/photos/wongoz/


Banco Santander, S.A.

(Formerly Banco Santander Central Hispano)

Banco Santander

Banco de Santander was established in the city of Santander in 1857 under a Royal Decree signed by Queen Isabel II. Banco Santander’s home market of Cantabria in northern Spain at the time had strong trading ties with Spain’s colonies in Latin America, and the bank flourished from trade financing between the two continents.

For much of the 20th century, however, Spain endured turbulent times: World War I disrupted the Spanish economy as it did to other European nations. Following the Great War, the Spanish economy recovered and entered a phase of rapid industrialization. But the 1929 Wall Street Stock Market Crash sent shock waves across the Atlantic and a number of major Spanish banks failed, though Banco Santander withstood the crisis. Just two years later in 1931, the Spanish monarchy was yet again replaced by a republic form of government, and political unrest boiled over between the Nationalists and the Republicans. In 1936, Spanish Civil War broke out and devastated the economy and social order that took the country decades to recover.

In 1939, Dictator Francisco Franco’s forces won the civil war and imposed strict political oppression and economic controls. Banks were banned from entering new areas of business but were allowed to merge with each other. Banco Santander acquired Banco de Ávila in 1942, gaining its first foothold in Madrid, and then acquired rival Santander-based Banco Mercantil in 1946. By 1957, Banco Santander’s 100th anniversary, it was the No. 7 bank in Spain.Banco Santander’s international expansion began in 1960 with the purchase of Argentina's Banco El Hogar Argentino. In 1965, Banco Santander and Bank of America jointly founded the Banco Intercontinental Español (Bankinter). One year later, Santander bought the First Nacional Bank de Puerto Rico, followed by the 1982 purchase of Banco Español-Chile. During the 1980s, the bank established presence across Latin America, in such countries as Brazil, Costa Rica, Dominican Republic, El Salvador, Guatemala and Uruguay.

In 1987, the bank bought auto finance provider CC-Bank in Germany, representing its first acquisition in Europe outside of Spain. It also bought a stake in Portugal's Banco de Comercio e Industria.

By 1994, Banco Santander had built up a 60% stake in Spanish rival Banco Español de Crédito (known as Banesto, founded 1902). In 1995, it launched a major expansion in Latin America including Argentina, Brazil, Colombia, Mexico, Peru and Venezuela. In 1998, the bank took full control of Banco Español de Crédito (Banesto).


Banco Central Hispanoamericano

Banco Central was founded in 1919 in Madrid by several wealthy aristocrats. The new bank took advantage of the post-World War I economic growth and became a major force in financing Spain’s heavy industries such as coal, steel, iron, and shipping. In 1931, like many countries around the world, the Banco de España, formerly a joint-stock commercial bank, became Spain’s central bank and withdrew from the deposit-taking and lending business. Banco Central promptly filled the retail market void left by Banco de España.

During the 1940s and 1950s, Spain’s economy remained severely depressed and underdeveloped compared to most of Western Europe. In 1958, with the help from the International Monetary Fund and other agencies, Spain began to take steps to control its spending and debt, remove its price controls and wage freeze, while encouraging foreign investment. Banco Central once again relied on its expertise in providing long-term credit to finance hydro-electric and petroleum projects. A decade of economic reforms finally led to a gradual rise of the middle-class in the late 1960s. Banco Central then began to expand its retail banking business by offering chequing accounts and consumer credit.

Despite these changes, Spain’s banks, including Banco Central, were still considered smallish, bureaucratic, over-staffed and uncompetitive by international standards. In anticipation of EU’s adoption of the Euro and cross-border competition from other member nations, Spain’s banks entered a phase of frenzy consolidation beginning in the late 1980s.

In 1988, cousins Alberto Alcocer and Alberto Cortina, who were married to sisters Esther and Alicia Koplowitz, owners of Spanish construction giant Construcciones y Contratas (Conycon), attempted to gain control of Banco Central’s board by accumulating a 12% stake in the bank. Banco Central’s chairman then orchestrated a merger plan with Banco Español de Crédito (Banesto) in an attempt to dilute los Albertos’s stake and control. Los Albertos (as Alberto Alcocer and Alberto Cortina were nicknamed by the popular press) responded by buying up a stake in Banesto also to exert influence in both banks. After a nine-month deadlock, los Albertos agreed to sell their stake in Banesto providing that the Banco Central-Banesto merger be called off. In a bizarre twist of events, the Koplowitz sisters divorced their husbands in 1990 following a much publicized extramarital affair conducted by Alberto Cortina, and los Albertos lost their seats in Conycon and Banco Central. Both Banco Central and Banesto’s chairmen survived the assault and kept their positions. The original Banco Santander eventually bought 73.5% of Banesto in 1994 for about USD $2.07-billion (ESP 285-billion).

Recent transaction(s):

• In 1991, Banco Central took over the ailing Banco Hispanoamericano (founded 1900). The merged bank became known as the Banco Central Hispanoamericano S.A. and promptly cut 10,000 jobs and closed 20% of the branches.
• In 1996, Banco Santander acquired 93.4% of Banco de Venezuela from the Venezuelan government for about USD $351-million. Founded in 1890, the bank was nationalized in 1994 before being sold to Banco Santander. In 2008, Venezuela once again nationalized Banco de Venezuela.
• In early 1999, Banco Santander bid USD $12.6-billion for Banco Central Hispanoamericano to form the new Banco Santander Central Hispano (BSCH).
• Later in 1999, BSCH also bought Banco Totta & Açores and Crédito Predial Português, gaining a 10% market share (1999 figure) in Portugal. BSCH had intended to buy all four banks controlled by the Champalimaud Group, but its proposal was opposed by the Portuguese government. The European Union subsequently ruled against Portugal and forced it to approve the sale of Totta & Açores and Crédito Predial Português to BSCH.
• In 2000, BSCH bought a 66.5% voting stake (33% economic stake) in Brazil's No. 3 bank Banco do Estado de Sao Paolo (known as Banespa) for USD $3.80-billion (Eur 4.38-billion). Within a few months, BSCH acquired the rest of Banespa for another USD $1.07-billion (Eur 1.20-billion), bringing the total cost to USD $4.87-billion (Eur 5.58-billion). Banespa had 577 branches in Brazil.
• Also in 2000, BSCH bought 97% of Brazil's Grupo Financeiro Meridional S.A., consisting of Banco Meridional and Banco de Inversiones Bozano Simonsen.
• Also in 2000, BSCH bought Mexico's Grupo Financiero Serfín from Mexico's government-controlled banking regulator Instituto para la Porteccíon al Ahorro Bancario (IPAB).
• Also in 2000, BSCH acquired a stake in Chile's Banco Santiago.
• Also in 2000, BSCH bought Venezuela's Banco de Caracas. BSCH then merged Banco de Caracas into its 97%-owned Banco de Venezuela to create the country's largest bank.
• Also in 2000, BSCH bought 75% of Miami-based Internet-based brokerage company Patagon.com International for USD $529-million. Patagon.com specialized in the Spanish- and Portuguese-speaking markets in Latin America.
• In 2002, BSCH bought a further 35.45% of Banco Santiago from the Chilean central bank for USD $685-million (Eur 772-million). BSCH subsequently merged Banco Santiago into its Banco Santander Chile subsidiary.
• In 2002, BSCH sold 24.9% of Mexico's Grupo Financiero Santander Serfín to Bank of America for USD $1.60-billion.
• In 2003, BSCH bought Italian consumer finance company Fincosumo from Italy's Sanpaolo IMI for Eur 140-million.
• In 2004, BSCH made a surprise GBP 8.5-billion (USD $15.75-billion) bid for British mortgage bank Abbey National. This represented the first cross-border acquisition of a major British bank by a Eurozone bank. Back in 2001, the British anti-competition commission vetoed Lloyds TSB's bid to take over Abbey National.
• In 2005, in a complex agreement, BSCH bought 19.9% of U.S. bank Sovereign Bancorp for USD $2.4-billion. In turn, Sovereign Bancorp took over Brooklyn, New York-based Independence Community Bank Corp. for USD $3.6-billion.
• In 2006, BSCH's Abbey National plc subsidiary agreed to sell its life insurance businesses to Resolution plc for GBP 3.6-billion. The sale mainly consisted of Scottish Mutual Assurance plc, Scottish Provident Ltd. and Abbey National Life plc.
• In 2007, BSCH sold its pension fund management business in Mexico, Chile, Colombia and Uruguay to the Netherlands' ING Groep for Eur 945-million (USD $1.3-billion). The business division sold to ING had more than Eur 13.8-billion (USD $19.9-billion) of assets under management. BSCH planned to use the proceeds to fund its share of the proposed Eur 71.1-billion (USD $98.1-billion) offer (with RBS and Fortis) for ABN Amro Holding NV (see below).
• In June 2007, Banco Santander Central Hispano, S.A. changed its name to Banco Santander, S.A.
• In October 2007, after a six-month battle with Barclays plc, Banco Santander SA, along with Fortis SA/NV and The Royal Bank of Scotland Group plc, won the control of ABN AMRO Holding NV with a Eur 70.0-billion (USD $101.1-billion) cash-and-stock offer. The deal was the world's biggest banking merger ever. The tri-bank consortium planned to break up ABN AMRO's global operations with Banco Santander taking over ABN AMRO's Brazilian and Italian operations, namely Banco ABN AMRO Real and Banca Antonveneta. Click here for a detailed timeline of the battle for ABN AMRO Holding.
• In November 2007, in a surprise move, Banco Santander "flipped" ABN AMRO's Italian unit Banca Antonveneta to Italy's Banca Monte dei Paschi di Siena (MPS) for Eur 9.0-billion (USD $13.21-billion). Banco Santander, Fortis and the Royal Bank of Scotland (RBS) had just jointly bought out ABN AMRO Holding NV (including Banca Antonveneta) for Euro 70.0-billion (USD $101.1-billion) deal less than a month earlier.
• In 2008, Santander and GE Money reached a deal to swap European assets worth Eur 2.0-billion (USD $3.16-billion) in total. Under the agreement, Santander obtained GE Money's German, Finnish and Austrian divisions, plus its credit card and automotive financing operations in Britain. In exchange, GE Money took control of Santander's Interbanca, the corporate banking unit of Italy's Banca Antonveneta that was purchased by Santander in 2007 as part of ABN AMRO Holding NV.
• In 2008, Santander bought British mortgage bank Alliance and Leicester plc for GBP 1.26-billion (Eur 1.58-billion, USD $2.51-billion). Alliance and Leicester shares had been languishing since the U.S. housing bust and global banking crisis began in early 2007. With Alliance and Leicester's 254-branch network, Santander would have 959 branches in the United Kingdom and 7.6% of the market.
• In 2008, Venezuelan de facto dictator President Hugo Chavez announced that the country would nationalize Banco Santander's local unit Banco de Venezuela.
• British mortgage bank Bradford & Bingley plc became insolvent over the 2008-09-29 weekend, and was nationalized by the British government. Under a complex transaction, Banco Santander acquired Bradford & Bingley's client deposits and 197 branches for GBP 612-million (Eur 766-million, USD $1.11-billion). Banco Santander already owned Britain's mortgage lenders Abbey National and Alliance & Leicester. The Bank of England and HM Treasury provided GBP 19.1-billion (USD $34.5-billion) of guarantees to Santander to take over the lender. The British government would be left with Bradford & Bingley's mortgage loan, personal loan and other assets with a book value of GBP 50-billion. The government insisted that it would get the GBP 19.1-billion back by either slowly selling off Bradford & Bingley's loan portfolios, or when the borrowers repay their loans.
• In October 2008, Santander privatized Sovereign Bancorp Inc. for USD $1.9-billion in stock. Santander first acquired 24.9% of Sovereign for USD $2.9-billion between 2005 and 2006, the current price of USD $1.9-billion for the remaining 75.1% highlighted how much bank valuation has dropped during the Great Banking Crisis of 2008.
• In May 2009, the Venezuelan government and Banco Santander reached a deal regarding the nationalization of Banco de Venezuela. Venezuela paid USD $1.05-billion to Banco Santander in cash and promissory notes to take control of Banco Venezuela, the country’s No. 1 bank with more than 300 branches.
• In October 2009, Santander sold 18.5% of its Brazilian unit Banco Santander (Brasil) S.A. in an IPO and raised BRL 14.1-billion (Eur 5.47-billion, USD $8.09-billion). Santander Brasil included the former Banespa and Banco Real, and had 3,612 branches and more than 21-million clients with a 10% market share.
• In June 2010, Santander bought back the 24.9% of Santander Mexico held by Bank of America since 2003 for USD $2.5-billion. Santander was Mexico's No. 3 bank.
• Also in June 2010, Santander bought a USD $3.2-billion (Eur 2.59-billion) auto loan portfolio from CitiFinancial Auto at 99% of the portfolio's face value.
• In August 2010, Santander agreed to buy from the Royal Bank of Scotland 311 RBS branches in England and Wales, and 7 NatWest branches in Scotland for Eur 1.99-billion (GBP 1.65-billion, USD $2.63-billion). The 318 branches served 1.8-million clients. Following the the purchase, Santander would have over 1,600 branches in the U.K (see update below).
• In September 2010, Santander agreed to buy the 70.4% of Poland's Bank Zachodni WBK S.A. and 50% of BZWBK AIB Asset Management held by Allied Irish Banks plc for Eur 3.09-billion (USD $3.97-billion). Bank Zachodni WBK was Poland's No. 3 bank and had 512 offices.
• In February 2010, Santander made a public tender offer to buy out the 29.6% minority shareholding of Poland's Bank Zachodni WBK. The latest offer valued the entire Bank Zachodni WBK at PLN 16.58-billion (Eur 4.29-billion, USD $5.83-billion).
• In October 2012, Santander's agreement to buy 316 British branches from the Royal Bank of Scotland Group collapsed citing operational difficulties and unreasonable delays.
• In September 2012, Santander floated 25% of its Mexican operations Santander México and raised about Eur 3.18-billion (MXN 52.8-billion, USD $4.13-billion) from the IPO.
• In December 2012, Santander acquired the 10% of Banesto that it didn't already own for Eur 260-million (USD $342-million).  Santander would end the Banesto brand and the consolidation would result in the closure of 700 branches between Santander and Banesto.
• In June 2014, Santander acquired GE Capital's GE Money Bank AB of Sweden for EUR 700-million (USD $952-million).  GE Money Bank AB provided personal loans and credit cards in the Nordic region, with Sweden accounting for 55% of its loan portfolio, Norway accounting for 26% and Denmark accounting for 19%.  The business had a total loan portfolio of EUR 2.35-billion.  Following the purchase, Santander's Nordic consumer finance operations would count over 1.2-million clients.
• In June 2017, Banco Santander bought Banco Popular Español (Banco Popular) for a symbolic EUR 1 (EUR 1 = USD 1.1276) from EU authorities that had just taken control of the insolvent bank, which has been struggling financially since the global banking crisis began in 2008. In recent weeks, Banco Popular had experienced an increasingly debilitating bank run as nervous depositors withdrew money from the bank. Banco Santander would raise EUR 7.0-billion in new equity to shore up Banco Popular’s balance sheet. The ailing bank was carrying over EUR 37-billion of non-performing real estate loans and properties when it failed. Banco Popular had over 4.6-million clients, almost 12,000 employees and over 1,700 offices.
• In February 2026, Banco Santander's American subsidiary Santander USA announced that it had reached a deal to acquire Webster Financial Corp. and Webster Bank, N.A. for USD $12.2-billion (EUR 10.3-billion). Webster's head office was in Stamford, Connecticut, and operated 195 branches in the U.S. Northeast, including 95 branches in Connecticut, 76 in New York state, 17 in Massachusetts and seven in Rhode Island. It had 4,500 employees at the time. By acquiring Webster, Santander became a top-ten retail and commercial bank in the U.S. by assets, and a top-five in the U.S. Northeast. The takeover would add USD $84-billion in total assets to Santander USA's existing $243-billion; and USD $57-billion in loans to the existing USD $128-billion; and USD $69-billion in deposits to the existing USD $103-billion.

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Unfortunate Victors: The Doomed Battle for ABN AMRO

Photo: Royal Bank of Scotland, Fortis and Banco Santander acquired ABN AMRO Holding for Eur 70.0-billion (USD $101.0-billion) in November 2007, marking it the largest banking acquisition in history up to that point. Ironically, barely one year following their massive acquisition, the Royal Bank of Scotland and Fortis went de facto bankrupt during the credit crisis and were nationalized by Britain (RBS) and Belgium and Luxembourg (Fortis). Meanwhile, the Dutch state bought ABN AMRO's Dutch operations from the bankrupt Fortis, returning the bank to Dutch control.

Children's Money, Adult's Battle

To the Dutch business world, 2007 was a dramatic year that saw the sale of ABN AMRO Holding NV. For several years, ABN AMRO’s management had been questioned for their mediocre management and poor profitability. Then in February 2007, British-based investment fund TCI (The Children’s Investment), holder of about 2% of ABN AMRO’s shares, openly criticized the bank’s management strategy and demanded the bank be sold or split up.

While publicly defending its long-term strategy during March, ABN AMRO held secret talks with British bank Barclays plc about a potential merger. On 2007-03-20, ABN AMRO and Barclays announced that they were in exclusive discussion about a potential combination. Speculation that a bidding war from other European and American banks would erupt lifted ABN AMRO's share prices from under Eur 30 to Eur 35 within days.

While the exclusive discussion between ABN AMRO and Barclays was still in progress, a banking consortium formed by the Royal Bank of Scotland Group (RBS), Belgium’s Fortis and Spain's Banco Santander on 2007-04-13 sent a letter to ABN AMRO’s board expressing their wish to acquire the Dutch bank. The banking consortium’s plans involved carving up ABN AMRO’s extensive global operations. RBS would take over ABN AMRO’s U.S. subsidiary LaSalle Bank, as well as ABN AMRO’s retail, commercial and investment banking businesses outside of Brazil, Italy and the Netherlands. RBS already had a sizable U.S. subsidiary named Citizens Financial. By acquiring Chicago-based LaSalle Bank, RBS could achieve greater synergy and efficiency in the U.S.

Meanwhile, Fortis planned to take over ABN AMRO’s home market in the Netherlands, as well as its global private banking and asset management divisions. Lastly, Banco Santander, which already operated extensively in Latin America, would take over ABN AMRO’s Brazilian operations Banco ABN AMRO Real, and expand into the high-growth Italian market by acquiring ABN AMRO’s Banca Antonveneta. With much more overlap in their existing markets, the tri-bank consortium could achieve much more cost savings and afford a higher price for ABN AMRO than Barclays.

The Dutch Central Bank, De Nederlandsche Bank (DNB), favouring a merger of equals between Barclays and ABN AMRO over the consortium’s break-up proposal, warned on 2007-04-18 of the risks and complications in “the preparation… the execution and implementation” of the [consortium’s] proposal. His comments, however, were immediately criticized by the European Commission that nationalist protectionism must not be used to discourage cross-border consolidation within the EU.

Barclays-ABN AMRO's Poison Pill

After a month of exclusive talks, Barclays and ABN AMRO jointly-announced on 2007-04-23 that they had agreed to an all-stock deal that valued ABN AMRO at Eur 67.0-billion (GBP 45.4-billion, USD $91.0-billion), making it the biggest banking merger ever. At the same time, ABN AMRO also announced that it had agreed to sell its U.S. operations LaSalle Bank (officially known as ABN AMRO North America Holding Co.) to Bank of America for USD $21.0-billion (Eur 15.46-billion) in cash. ABN AMRO’s surprise announcement to pre-emptively sell LaSalle Bank was clearly a “poison-pill” move to fend off the breakup proposal from RBS, Fortis and Santander. Without LaSalle Bank, the division most sought after by RBS, it was believed that consortium might disband itself.

Under the Barclays-ABN AMRO merger proposal, the new bank would retain the name Barclays plc, and have its head office in Amsterdam. Existing Barclays shareholders would end up owning 52% of the new bank, while the remaining 48% would be owned by the former ABN AMRO shareholders. About 12,800 jobs would be cut from the combined operations. Consolidation cost savings would amount to Eur 3.5-billion annually.

Furious Consortium Counter-offers

Understandably, RBS, Fortis and Santander were furious about ABN AMRO’s agreement to sell LaSalle Bank to Bank of America for USD $21.0-billion. British investment fund TCI and Dutch investor rights group VEB both demanded that the terms of the LaSalle Bank sale be made public, and a shareholders’ meeting be called to vote on the sale.

Barely two days following the Barclays offer, RBS, Fortis and Santander made an unsolicited, informal offer of Eur 72.2-billion (USD $98.5-billion) for ABN AMRO, triggering a dramatic takeover battle. The consortium’s offer consisted of 70% in cash and 30% in stock. However, the offer was conditional on ABN AMRO rescinding its agreement to sell LaSalle Bank. Analysts generally favoured the consortium’s offer, as it was higher than the one proposed by Barclays, and had a high cash component as opposed to Barclays’ all-stock offer, whose value had fallen to Eur 65.0-billion (USD $88.2-billion) due to a drop in Barclays’ share prices. When ABN AMRO’s management refused to let its shareholders vote on the sale of LaSalle Bank, shareholder rights group VEB launched a lawsuit against the Dutch bank.

Throughout April and May 2007, the market wildly speculated that HSBC, BNP Paribas, BBVA and JPMorgan Chase could also bid for ABN AMRO. There were also rumours that Société Générale and UniCredit were in merger talks with each other.

ABN AMRO’s uncertain future prompted some clients to pull their savings from the bank and others to express concerns. ABN AMRO’s employees and labour unions accused the shareholders of selling out one of Netherlands’ most important businesses, and urged the shareholders to put the future of Dutch jobs and the Dutch economy ahead of greed.

Meanwhile, Bank of America, eager to acquire LaSalle Bank from ABN AMRO, signalled that it would sue ABN AMRO should the LaSalle Bank sale agreement be rescinded, potentially triggering a lengthy and nasty legal battle across the Atlantic.

While all the parties waited for the Enterprise Chamber of the Amsterdam Court of Appeal’s ruling on the VEB lawsuit, ABN AMRO openly questioned how the consortium could come up with more than Eur 50.0-billion in cash to pay for the offer.

The Trans-Atlantic Lawsuits

On 2007-05-03, the Enterprise Chamber of the Amsterdam Court of Appeal ruled that ABN AMRO’s sale of LaSalle Bank to Bank of America was illegal, and that ABN AMRO must obtain shareholders’ approval before the sale could proceed. Within 24 hours of the Dutch court’s ruling, Bank of America filed a lawsuit in the U.S. District Court in Manhattan demanding ABN AMRO to go ahead with the sale.

At the same time, Dutch finance minister Wouter Wos also waded into the takeover drama by urging the RBS-Fortis-Santander consortium to clarify on their financing and breakup implementation plans.

Not backing down from the legal setback, Barclays and ABN AMRO filed an appeal on 2007-05-15 to the Dutch Supreme Court over the ruling that froze the sale of LaSalle Bank to Bank of America. Then two weeks later, RBS, Fortis and Santander officially presented their hostile Eur 71.1-billion offer for ABN AMRO.

The takeover battle went through a month of relative calm until 2007-06-25, when the most senior advisor to the Dutch Supreme Court, Attorney General Levinius Timmerman concluded that ABN AMRO’s sale of LaSalle Bank to Bank of America was legal, and should not be blocked. The Attorney General’s legal opinions, while not binding, have historically been highly regarded by the Supreme Court.

Barclays-ABN AMRO: 1 Consortium: 0

On 2007-07-13, as expected, the Dutch Supreme Court cleared ABN’s sale of LaSalle Bank to Bank of America. Analysts began to wonder if the setback would cause RBS to pull out of the consortium. By now, however, a further drop in Barclays’ share prices meant that its offer has fallen in value to Eur 63.7-billion (USD $87.6-billion).

Despite the failure to secure LaSalle Bank, the RBS-Fortis-Santander consortium not only pressed on with the offer, but on 2007-07-16 raised the cash component of their offer from 70% to 93.5%, with the rest payable in Royal Bank of Scotland shares. This meant that the consortium now needed to come up with Eur 65.7-billion (USD $90.4-billion) in cash to buy ABN AMRO.

Barclays Gets Hot Money from Asia

Barclays, refusing to back down from the battle, also worked behind the scene to look for ways to raise its offer. Exactly one week after the consortium raised their cash portion of the offer, Barclays raised GBP 2.44-billion (Eur 3.6-billion, USD $4.97-billion) in cash by issuing a 3.1% stake to China Development Bank and a 2.0% stake to Singapore’s sovereign fund Temasek Holdings. Barclays would use the proceeds to buy back its own shares to support its share price. Should the bid for ABN AMRO succeed, China Development Bank had committed to invest another GBP 3.64-billion worth of Barclays shares, whereas Temasek had committed to invest another GBP 499-million worth of Barclays shares.

Armed with this freshly-injected GBP 2.44-billion cash, Barclays raised its offer for ABN AMRO to Eur 67.5-billion (USD $93.1-billion) and added a cash component to it: the new offer was 37% in cash and 63% in Barclays’ shares. Barclays’ new offer was still 5% below that from the tri-bank consortium, but the bank was betting that its share buyback programme would prompt investors to bid up its share prices. It was also hoping that ABN AMRO’s shareholders might favour the friendly merger deal over the uncertainties surrounding the consortium’s offer.
However, Barclays’ new offer failed to ignite investor enthusiasm and the value of its offer continued to linger around Eur 66.0-billion rather than catch up to the consortium’s Eur 72.0-billion.

Consortium Seeks Eur 65.7-Billion, in Cash

In late July, there were doubts over whether Fortis, the smallest member in the consortium, could raise the Eur 24.0-billion from investors to finance its share of the ABN AMRO purchase. For much of late July and August, ABN AMRO shares traded between Barclays’ offer price and the consortium’s offer price, suggesting uncertainties over the outcome of the battle. However, Fortis, RBS (Eur 22-billion) and Santander (Eur 19.8-billion) all successfully raised the cash required to pay for ABN AMRO.

Barclays, meanwhile, was understood to be taking a wait-and-see stance, as it was convinced that the Dutch central bank and the EU anti-trust authorities would place tough conditions on Fortis’ plan to take over ABN AMRO’s Dutch operations.

Tremors from the U.S.

The takeover battle for ABN AMRO took another unexpected twist in August, when the credit crisis suddenly caused banks around the world to tighten lending activities. The formerly red-hot U.S. housing market, which had been in a slump since late 2006, began to cause massive loan losses in the global banking sector throughout the summer of 2007. Corporate bond prices slumped and trading of higher-risk mortgage loans, often packaged and re-sold to investors as collateralized debt obligations (CDOs), came to an abrupt halt when mortgage default rates soared. As many companies around the world had invested their short-term cash in these CDOs, the seize-up of CDO market caused a sudden shortage of cash. The resulting liquidity crisis led stock markets around the world to tumble. At one point, there were fears that both Barclays and the consortium would withdraw its offer for ABN AMRO due to their high exposure to the alternative investment market.

During the first wave of the credit market crunch in late-August, the value of Barclays’ mostly-stock offer fell sharply to Eur 58.4-billion (USD $79.3-billion, GBP 40.0-billion), essentially wiping out all the gain made by the cash injection from China Development Bank and Temasek. Despite a significant fall in RBS’ and Fortis’ share prices also, the value of the RBS-Fortis-Santander offer remained relatively steady at around Eur 70.6-billion (USD $96.5-billion) due to its high cash element. Nevertheless, several of RBS’ institutional shareholders in September 2007 were believed to have urged the bank to activate the “material adverse event” clause to reduce or even cancel the offer for ABN AMRO.

Cash is King. Barclays Loses the Battle But Wins Eur 200-million

Meanwhile, Barclays’ hope that Fortis would face anti-trust challenges in the Netherlands was dashed on 2007-10-03, when the European Commission cleared RBS-Fortis-Santander’s acquisition of ABN AMRO. One day after that, only 0.28% of the outstanding ABN shares were tendered to Barclays and the British bank conceded defeat. In accordance with the friendly merger agreement, ABN AMRO paid Barclays a Eur 200-million breakup fee. Meanwhile, the RBS-Fortis-Santander consortium received more than 86% of ABN AMRO’s shares and made its offer unconditional. The consortium's higher and almost all-cash offer clearly won over the hearts of ABN AMRO’s shareholders at uncertain times. At closing, the consortium’s offer was worth about Eur 70.0-billion (USD $101.0-billion).

Two of the Three Victors Became Big Losers

Even though RBS, Fortis and Banco Santander appeared to be the victors, against all odds, in the takeover battle for ABN AMRO, it soon became apparent that their acquisition could not have been executed at a worse time.

Throughout 2008 and 2009, the global real estate bubble burst and the CDO market collapsed. Recklessly careless lending by banks and carefree borrowing from consumers since 2000 together contributed to a massive housing and credit bubble in the United States, Great Britain, Spain, Ireland, Iceland and Eastern Europe. A huge amount of these consumer loans was re-packaged into “innovative” investment products that were off-balance-sheet, meaning that the loans were not subject to regulatory capital requirements.

When the bubble burst in 2007 and 2008, the impact was so severe that many of the world’s largest financial institutions including Citigroup, Bank of America, Wachovia, Merrill Lynch, Morgan Stanley, HBOS, Royal Bank of Scotland, Fortis and UBS certainly would have gone bankrupt were it not a concerted effort by governments around the world to inject much-needed capital into the banks, and to unconditionally guarantee their loan losses and customer deposits.
Shockingly, less than one year following their triumphant purchase of ABN AMRO, both the Royal Bank of Scotland and Fortis were de facto bankrupt in September 2008. At this point the Dutch state decided to buy ABN AMRO's Dutch operations from the bankrupt Fortis, which ironically, returned ABN AMRO to Dutch control. The Royal Bank of Scotland only survived because the British government nationalized the bank by injecting billions of pounds of new capital, as well as insuring hundreds of billions of sour loans against losses. Similarly, Fortis was nationalized by the Belgian and Luxembourg states. Fortis' Belgian operations were then taken over by BNP Paribas. Both RBS’ and Fortis’ shareholders lost almost 100% of their investment.

The Shrewd Santander

Banco Santander, on the other hand, came out of the ABN AMRO drama as a true and respected winner. In fact, just when the whole ABN AMRO deal was being closed, Santander surprised the market by selling Banca Antonveneta, ABN AMRO's Italian division that it had just acquired days earlier, to Banca Monte dei Paschi di Siena for Eur 9.0-billion (USD $13.21-billion) in cash. This meant that Santander only paid about Eur 9.8-billion for Banco ABN AMRO Real of Brazil, which was considered to be a bargain.

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