Rbs – Abn Amro Acquisition

Background ABN AMRO had come to a crossroads in the beginning of 2005. The strand had still not come close to its own target of having a return on equity that would put it among the top 5 of its companion mathematical group, a target that the CEO, Rijkman Groenink had set upon his appointment in 2000. From 2000 until 2005, ABN AMROs stock impairment stagnated. Financial results in 2006 added to concerns about the banks future. Operating expenses ontogenesisd at a greater rate than operating revenue, and the efficiency ratio deteriorated further to 69. 9%. Non-performing loans increased considerably year on year by 192%.Net boodle were only boosted by sustained asset sales. There had been some birdcalls, all over the prior couple of years, for ABN AMRO to break up, to merge, or to be acquired. On February 21, 2007, the call came from the The Childrens Investment Fund Management hedge fund which asked the Chairman of the supervisory Board to actively investigate a merger, acqui sition or dissolution of ABN AMRO, stating that the current stock price didnt reflect the true value of the underlying assets. TCI asked the chairman to put their request on the agenda of the annual characterholders confrontation of April 2007.Events accelerated when on March 20 the British bank Barclays and ABN AMRO two confirmed they were in exclusive talks about a come-at-able merger. A consortium of banks, including RBS, Belgiums Fortis, and Spains Banco Santander also proposed an acquisition and finally won the business deal. The RBS-ABN Amro deal is also unusual in that it led to the fall of not entirely one buyer but two the Belgian-Dutch bank Fortis was nationalised by the Dutch government last year to avert a liquidity crisis. On 22 April 2008 RBS announced the largest rights issue in British corporate history, which aimed to stimulate ? 2billion in newborn-sprung(prenominal) capital to offset a writedown of ? 5. 9billion resulting from the bad enthronements and to shore up its reserves following the purchase of ABN AMRO. On 13 October 2008, British Prime Minister Gordon Brown announced a UK government bailout of the financial system. The Treasury would infuse ? 37 billion ($64 billion, 47 billion) of new capital into Royal buzzword of Scotland Group Plc, Lloyds TSB and HBOS Plc, to avert financial orbit collapse. This resulted in a total government ownership in RBS of 58%. As a consequence of this rescue the chief executive of the group Fred Goodwin claimed his resignation, which was duly accepted.In January 2009 it was announced that RBS had made a loss of ? 28bn of which ? 20bn was due to ABN AMRO. At the same time the government converted their preference shares to ordinary shares resulting in a 70% ownership of RBS. The 452-page report by the FSA into what went wrong at RBS found that the bank conducted inadequate due manufacture into ABN, on the nates of just two lever arch files and a CD. The board was fully aware that it co uld undertake only extremely limited due diligence in respect of the ABN Amro acquisition.However, it appears to have treated the fact that such constraints on due diligence are normal in any contest bid as, at least to some degree, entitling it to disregard this impediment. Once they started to image around ABNs trading books later the acquisition, they realised that a peck of their businesses, particularly what you would call model businesses where valuations were based on assumptions, were based on forecasts that were super aggressive, said one senior former RBS trader. The woes at RBS were in stark contrast to its consortium partner Santander, which had acquired businesses that proved relatively unbiased to separate.Quite how well Santander had done out of the deal, became only too apparent on November 8 when it announced it was selling Antonveneta to Banca Monte dei Paschi di Siena for 9bn, 2bn much than the price it had bought it for slight than a month earlier. On 9 Fe bruary 2010, the businesses of ABN AMRO acquired by the Dutch put in were legally demerged from the RBS acquired businesses. This created two separate banks within ABN AMRO Holdings, The Royal banking company of Scotland and the new entity named ABN AMRO Bank, each licensed separately by the Dutch Central Bank TransactionRBS (UKRBS), Santander (USSTD), and Fortis offered 30. 40 euros in money and 0. 844 RBS share for each ABN Amro share, valuing the Dutch bank at 38. 40 euros a share. The deal was valued at 67 billion. Barclays offer for ABN AMRO was 67. 5bn, Our philosophy is to offer as much cash as possible, said Fred Goodwin, chief executive of RBS, at a extort conference. He said the banks were able to offer more cash after performing limited due diligence on ABN Amro. Throwing in more cash heightened the pressure on ABN to back the consortiums offer.Shareholders accepted a 71bn euro ($98. 5bn ? 49bn) offer to clinch Europes biggest ever banking takeover and Barcalays withd rew its bidding. Breaking down the costs on a lower floor the plan, RBS would pay 27. 2 billion euros to get ABNs North American, Asian, Latin American (except Brazil), investment and corporate banking arms. Fortis would pay 24 billion euros to get ABNs Dutch, private-client and asset-management businesses, and Santander would pitchfork over 19. 9 billion euros for ABNs Brazilian and Italian presence.The three banks would share other assets, such as ABNs head office and its private-equity portfolio. Theyd sell the sake in Capitalia , the Italian bank thats recently agreed to be bought by UniCredit . The break-up of ABN will involve 4,500 branches across 53 countries and unravelling businesses ranging from cash management trading operations in Asia to retail banking in Brazil. RBS is expected to take its wholesale and investment banking business and its Asian operations while Santander will get ABNs Italian and Brazilian units, and Fortis its Dutch business and wealth and asset ma nagement operations.Royal Bank of Scotland acquired the business most affected by the market turbulence of the sub-prime crisis. target The banks saw a 4. 23 billion euros in cost nest egg by the end of 2010, and said their profit will be boosted by an additional 1. 22 billion euros of revenue. They said the deal is expected to increase Fortiss earnings per share by 4% by the end of 2010, scrape RBS EPS by 7% and improve Santanders EPS bsy 5%.