Great Britain Bank Mergers & Acquisitions (Barclays)

Photo: Musicians are seen performing outside a Barclays branch in Whitby, North Yorkshire, on a summer weekend. Photo was taken in September 2007.


Barclays plc

Barclays Bank can trace its history back to 1690 when two London goldsmiths named John Freame and Thomas Gould started a private bank to offer loans and safety deposit services for wealthy merchants. In 1736, James Barclay, who had married John Freame's daughter, became a partner. This was the first time the name Barclay became associated with the bank.

In 1896, 20 such private banks led by the Barclay and Company amalgamated into a joint-stock bank called Barclay & Co. Ltd. with 182 branches. Barclays acquired the London Provincial and South Western Bank in 1918, becoming one of Britain’s Big Five banks. In doing so, it inherited that bank’s ownership in the Colonial Bank, a British overseas bank founded in 1836 that had a near-monopoly in the Caribbean for much of the 19th century and also operated in British West Africa (Nigeria).

Historically, banking in England, Scotland and Northern Ireland has always been quite separate from each other -- in other words -- English banks have very few branches and minuscule market share in Scotland and Northern Ireland, and vice versa for the Scottish and Northern Irish banks. This did not mean that banks from all three "countries" could not acquire or control banks in each other's territories, though this typically involved the much more powerful English banks taking over the Scottish or Northern Irish banks rather than the other way round. (In terms of laws, business and banking, England and Wales are much more integrated.) During and after Word War I, a wave of cross-border amalgamations happened involving English banks acquiring Scottish and Northern Irish banks. In 1919, Barclays took over Scotland's British Linen Bank. As in all the Anglo-Scottish banking acquisitions, they were "affiliations" instead of full mergers, as the Scottish banks (including British Linen Bank) retained their own boards of directors, structure, names, branding and banknote issues. (In Scotland, banknotes are issued by the Scottish commercial banks instead of by the Bank of England.)

In 1925, following its acquisitions of the ailing National Bank of South Africa, Barclays restructured its various overseas holdings Colonial Bank, Anglo-Egyptian Bank and National Bank of South Africa into Barclays (Dominion, Colonial, and Overseas). Anglo-Egyptian Bank, of which Barclays had owned a majority interest since 1921, had operations in Egypt, Gibraltar, Malta, Sudan and Palestine. In 1954, Barclays (Dominion, Colonial & Overseas) was renamed Barclays (D.C.O.). In 1971, it became Barclays Bank International.

Barclays Bank pioneered the first credit card in Britain when the Barclaycard was launched in 1966. One year later, the bank installed the world's very first ATM bank machine, allowing clients to withdraw cash outside of a branch and during off hours.

In 1968, Barclays, Lloyds and Martins Bank announced a three-way merger that would have created a mega bank with 45% of the total deposits in England. At this point the British Monopolies Commission intervened and vetoed the merger plan. But in 1969, Barclays came back again and acquired Martins Bank, which was approved by the government. The acquisition further strengthened Barclay's position as one of U.K.'s largest financial institutions.

In 1971, Barclays decided to sell its Scottish business, the British Linen Bank, to the Bank of Scotland in stock. In doing so, Barclays took up a 35% stake in Bank of Scotland for a number of years.

Throughout the 1970s and 1980s, political pressure from the now independent nations in the Caribbean and Africa led to the divestments of a number of local operations by Barclays, which became the now locally-owned Republic Bank in Trinidad and Tobago, the Union Bank of Nigeria, the Guyana Bank of Trade and Industry, the National Commercial Bank Jamaica and the First National Bank in South Africa etc.

In 1986, in preparation of the deregulation of the British securities market, Barclays Merchant Bank, de Zoete & Bevan and Wedd Durclacher Morduant & Co. merged to form Barclays de Zoete Wedd (BZW), a new investment banking concern. BZW subsequently was re-organized into today’s Barclays Capital.

Recent transaction(s):

• In 1996, Barclays bought San Francisco-based Wells Fargo Nikko Advisers and merged it with its own BZW Investment Management unit to form what became Barclays Global Investors. Barclays Global Investors was divested in 2009 to BlackRock (see later entry).
• In 2000, Barclays bought British mortgage lender Woolwich for GBP 5.40-billion (USD $8.10-billion).
• In 2003, Barclays bought Spain's Banco Zaragozano for Eur 1.14-billion.
• In 2005, Barclays acquired 60% of South African bank Absa (Amalgamated Banks of South Africa) for ZAR 33-billion (GBP 2.90-billion, USD $5.60-billion). 
• In 2007, Barclays bought U.S. sub-prime mortgage lender EquiFirst Corp. from Regions Financial for USD $76-million (GBP 38.7-million). The purchase price was lowered from the original USD $225-million due to the U.S. sub-prime meltdown.
• On 2007-04-23, Barclays and Netherlands' ABN AMRO Holding NV agreed to merge in a deal that valued ABN AMRO at Eur 67.0-billion (GBP 45.4-billion, USD $91.0-billion). However, the Barclays-ABN AMRO merger proposal died in October when The Royal Bank of Scotland, Belgium's Fortis and Spain's Banco Santander won ABN AMRO with a Eur 70.0-billion (USD $101.1-billion) cash-and-stock offer. Click here for a detailed account of the battle for ABN AMRO.
• In 2008, Barclays agreed to buy Russia's ExpoBank for GBP 373-million (USD $745-million) from Petropavlovsk Finance. ExpoBank operated 32 branches in Moscow and St. Petersburg, and had one of the biggest ATM networks in Moscow. This was Barclays' first foray into the Russian retail banking market.
• In June 2008, Barclays raised GBP 4.469-billion (USD $8.79-billion) to replenish its capital reserve depleted by the global credit crisis, as well as to prepare the bank for future expansion. The massive stock sale was subscribed by the Qatar Investment Authority (GBP 1.764-billion), Sheikh Hamad Bin Jassim Bin Jabr Al-Thani's Challenger Universal Ltd. (GBP 533-million), Japan's Sumitomo Mitsui Financial (GBP 500-million), China Development Bank (GBP 136-million), Singapore's Temasek (GBP 200-million) and other institutional and private investors (GBP 1.336-billion).
• Also in 2008, Barclays sold its life insurance unit Barclays Life to Swiss Reinsurance Co. (Swiss Re) for GBP 753-million (CHF 1.55-billion, USD $1.47-billion, Eur 951-million). The unit sold had 760,000 life insurance and pension policies and annuity contracts, representing GBP 6.8-billion in invested assets.
• In September 2008, Lehman Brothers Holdings Inc. went bankrupt after both Barclays and Bank of America walked away from rescuing it. Barclays, however, returned a few days later and acquired Lehman Brothers' North American investment banking, fixed-income and equities sales, trading and research divisions at a fire-sale price of USD $250-million (GBP 140-million). The divisions employed about 10,000 people. Barclays also acquired Lehman Brothers' mid-town Manhattan head office building and two data centres for another USD $1.5-billion (GBP 843-million). During the height of the stock market and real estate boom in early 2007, Lehman Brothers had a market value of USD $45-billion. Lehman's risky mortgage portfolios and credit default swaps derivatives were not part of the sale to Barclays.
• In 2008, Barclays bought the Italian residential mortgage business of Australia’s Macquarie Bank. Financial terms were not disclosed but the mortgage portfolio had an outstanding balance of Eur 1.1-billion (GBP 884-million, USD $1.41-billion).
• In October 2008, Barclays raised GBP 7.05-billion in new capital from Middle Eastern institutional investors, after Britain’s FSA demanded various British banks to raise an additional GBP 25-billion in capital.
• In February 2009, Barclays bought a small Indonesian bank called PT Bank Atika.  Atika had assets of GBP 54-million and 10 branches.
• In April 2009, Barclays agreed to sell its iShares exchange-traded fund (ETF) unit to private equity firm CVC Capital Partners Ltd. for USD $4.4-billion (GBP 3.0-billion). The sale was part of Barclays’ aim to bolster its capital reserves to avoid a government bailout. iShares had GBP 266-billion under management as of 2008-12-31, and was the largest exchange traded fund manager in the world.
• In June 2009, Barclays rescinded the agreement to sell its iShares ETF unit to CVC Capital Partners Ltd., and reached a new agreement to sell the entire Barclays Global Investors to BlackRock for USD $13.5-billion (GBP 8.2-billion). Under the deal, Barclays would receive USD $6.6-billion in cash and USD $6.9-billion of BlackRock shares. The bank would end up holding a 19.9% economic interest in the newly-named BlackRock Global Investors, but only a 4.9% voting stake. Barclays then paid a USD $175-million break fee to CVC Capital Partners. The unit sold by Barclays managed USD $1.5-trillion of assets. When the deal completed at the end of 2009, the value was revised to USD $15.2-billion (GBP 9.5-billion) due to a rise in BlackRock share prices. 
• In September 2009, Barclays bought Citigroup's Portuguese credit card business with 400,000 accounts and EUR 644-million in receivables. Terms were not disclosed.
• In October 2009, Barclays bought the banking assets of Standard Life plc for GBP 226-million (USD $369-million) to expand its British savings and mortgage business. Standard Life Bank had GBP 5.5-billion of deposits and GBP 8.8-billion of mortgage loans.
• In February, 2010, Barclays bought Citigroup's Italian credit card operations with 197,000 accounts and EUR 234-million (GBP 204-million) in receivables. Terms were not disclosed.
• In June 2010, Namibia's central bank blocked Asba Bank's attempt to buy 70% of Capricorn Investment Holdings for NAD $1.5-billion (USD $185-million) on concerns that the last locally-owned Namibian bank would into Anglo-South African control. Asba was majority-owned by Barclays. Capricorn Investment owned 72% of Namibia's Bank Windhoek (with 39 branches) as well as 88% of Botswana's Bank Gaborone.
• In March 2011, Barclays bought Egg's credit card operations with 1.15-million accounts and GBP 2.3-billion in receivables.
• In October 2011, Barclays sold its Russian retail and commercial banking operations to an investor group led by Orient Express Bank's owner Igor Kim. Financial terms of the deal were not announced but the price is said to be much less than the GBP 373-million that it paid for ExpoBank in 2008.
• In May 2012, Barclays sold its 19.6% stake in BlackRock for USD $6.1-billion (GBP 3.95-billion) in order to boost its capital.
• In October 2012, Barclays bought ING Direct UK from ING Groep.  ING Direct UK had 1.5-million customers, GBP 10.9-billion of deposits and GBP 5.6-billion of mortgage loans. Terms were not disclosed.
• In February 2013, Barclays and its 55.5%-owned South African-based subsidiary Absa Group Ltd. reached an agreement under which Barclays would sell its operations in eight African countries outside of South Africa to Absa Group in exchange for 129.5-million new Absa shares.  The all-stock deal was worth USD $2.1-billion (ZAR 18.53 billion, GBP 1.35-billion) and would raise Barclays' stake in Absa Group from 55.5% to 62.3%.  Barclays had previously blocked Absa from expanding in other African countries outside of South Africa, where Barclays also had direct operations.  If approved by Absa's minority shareholders, Absa would be re-named Barclays Africa Group Ltd. following the transaction. The combined operations would have 43,000 employees serving 14.4-million customers through 1,300 outlets and 10,400 ATMs.
• In May 2014, Barclays announced that it would significantly scaled back its FICC (fixed income, currencies and commodities) trading arm and cut 7,000 more jobs in addition to the 12,000 announced earlier. 
• In August 2014, Barclays sold its Spanish retail banking, wealth and investment management and corporate banking operations to local rival CaixaBank for EUR 800-million (GBP 630-million, USD $1.05-billion). The business sold in Spain included 550,000 clients, 262 branches and 2,400 employees.
• In September 2015, Barclays sold its Portuguese retail banking and insurance units to Spain's Bankinter SA and Bankinter Seguros de Vida, S.A. Seguros y Reaseguros (“Bankinter Vida”) for EUR 175-millin (GBP 127-million).  The units sold included 84 branches and 1,000 employees. Barclays would maintain its Barclayscard, investment banking and multinationals corporate banking operations in Portugal.
• In February 2016, Barclays announced that it would exit Africa by selling its entire 62.3% stake in Barclays Africa Group by 2019 to re-focus on the British and American markets.  Barclays Africa Group's head office is in South Africa and owns majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania (Barclays Bank Tanzania and National Bank of Commerce), Uganda and Zambia; it also has insurance operations in Botswana, Mozambique, South Africa and Zambia. The group has over 1,200 branches and employs 42,000 employees; its most significant subsidiary is ABSA Bank in South Africa and Namibia. Barclays and its predecessor banks had operated in Africa for well over a century.
• In April 2016, Barclays sold its wealth and investment management business in Singapore and Hong Kong to Singapore's Oversea-Chinese Banking Corp. for USD $228-million. The price was lowered from USD $320-million due to a drop of assets under management from the original estimate.
• Also in April 2016, Barclays sold its Barclaycard consumer payments business in Spain and Portugal to Banco Popular-e, a Spanish on-line bank 51% owned by Varde Partners and 49% owned by Banco Popular Espanol.
• In May 2016, Barclays sold a 12.2% stake in Barclays Africa Group Ltd. (BAGL) for GBP 603-million (ZAR 13-billion). Following this sale, Barclays' stake in BAGL fell to 50.1%.
• Also in May 2016, Barclays sold its bullion vault in London to ICBC Standard Bank for an undisclosed amount. The bullion vault is said to have capacity for 2,000 tonnes of precious metals such as gold, platinum and silver. ICBC Standard Bank is 60%-owned by the Industrial & Commercial Bank of China and 40% owned by South Africa's Standard Bank.
• In June 2016, Barclays sold its Spanish pension assets and liabilities to Vidacaixa, S.A.U. de Seguros y Reaseguros, a member of the Caixa Group.
• In August 2016, Barclays sold its Barclays Risk Analytics and Index Solutions Ltd. (BRAIS) to Bloomberg L.P. for approximately GBP 615-million.
• Also in August 2016, Barclays sold its Italian retail banking network to CheBanca!, a member of the Mediobanca Group. 
• In October 2016, Barclays sold Barclays Bank Egypt to Morocco's Attijariwafa Bank S.A. Barclays Bank Egypt had 56 branches and 1,500 employees. Terms were not disclosed, but sources at the time said the deal was worth about GBP 308-million (USD $400-million).
• In December 2016, Barclays sold its French retail banking business to AnaCap Financial Partners. The operations disposed had a network of 74 branches,
• In May 2017, Barclays sold another 33.7% of Barclays Africa Group Ltd. (BAGL) for GBP 2.22 billion (ZAR 37.7-billion, USD $2.83-billion). Barclays further planned to contribute 1.5% of BAGL to a black economic empowerment scheme, leaving Barclays with approximately a 15% long-term stake in the African bank.
• In February, 2024, Barclays announced that it was buying Tesco Bank's credit cards, loans and savings accounts and had also agreed to market Tesco-branded banking services from British supermarket giant Tesco plc for GBP 600-million. About 2,800 Tesco Bank's employees would join Barclays Bank. The acquisition would see Barclays gain GBP 8.3-billion of unsecured loans and GBP 6.7-billion of deposits. Tesco plc would retain Tesco Bank's insurance, ATMs, travel money and gift cards operations.

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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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