The French bank BNP Paribas wants to take over its sector competitor ABN AMRO, but the Dutch persevere. Still, there is something to be said for the merger plans.
It may come as a surprise that fourteen years after the financial crisis, plans for a major European bank merger are resurfacing. But in the case of BNP Paribas and ABN AMRO, there is actually an industrial and commercial logic:
It may come as a surprise that fourteen years after the financial crisis, plans for a major European bank merger are resurfacing. But in the case of BNP Paribas and ABN AMRO, there really is an industrial and commercial logic: European banks have reduced their international presence in recent years. ABN AMRO closed its investment bank outside Europe and closed offices worldwide. BNP Paribas is selling Bank of the West, which has banking operations in the western United States, for $ 16 billion in cash. That money is more than enough to take over ABN AMRO. At the current share price, the Dutch bank is worth around 10 billion euros. The acquisition also seems manageable: In total, BNP Paribas is six times as large as ABN AMRO: EUR 2.5 trillion against EUR 400 billion BNP Paribas wants to focus more on European markets and companies. ABN AMRO fits perfectly into that picture. In the Netherlands, ABN AMRO is still a complete bank for individuals and companies. In the rest of North-West Europe, it focuses on companies and customers with high net worth. In the field of private banking, ABN AMRO is particularly strong in the Netherlands, Germany, France and Belgium. For BNP Paribas, a merger will mean a significant expansion to Northern Europe, a region where the bank has a less strong presence than in its ‘domestic markets’ France, Italy and Belgium. The combination of BNP Paribas Fortis and ABN AMRO will give the French group a leading retail banking activity in the Benelux. Within commercial banking, the bank will strengthen its portfolio of corporate customers in Northern Europe. Finally, in the field of private banking and asset management, it would acquire important market positions in the Netherlands and Germany. Since the beginning of 2018, ABN AMRO has lost almost 60 percent of its market value. This was due to the bank’s low profitability. CEO Robert Swaak, who took office in 2020, tackled this problem by divesting the investment bank outside Europe. That strategy seems to be paying off. In 2021, the bank made a profit of 1.2 billion euros, while there was still a deficit a year earlier. However, so far it has not led to renewed optimism among investors, as the share price hovers slightly above EUR 10. The ECB will implement a number of rate hikes in the coming months. A higher interest rate usually provides a better interest margin for the banks, which means that there is a higher profitability on the horizon. This can contribute to the consolidation of the European banking sector, a development preferred by regulators and supervisors. Despite the commercial logic, however, it is not certain that a takeover will take place. After all, merger plans face obstacles: since it is a cross-border merger, synergy benefits are not easy to achieve. The possibilities for, for example, merging office networks and realizing savings are limited. In addition, ABN AMRO has almost 60 branches in the Netherlands. In addition, there is still no completed banking union in Europe. As a result, there is often a separate bank in each country with its own balance sheet and national supervision. They each have their own general services and fixed costs. A takeover of ABN AMRO by BNP Paribas would inevitably involve the relocation of headquarters to Paris. It will be difficult for the Dutch. In 2020, Unilever decided to move its headquarters to London, followed by Shell last year. To many Dutch people, ABN AMRO symbolizes the thriving trading nation that the Netherlands was and wants to remain. Seeing this crown jewel go abroad can also lead to painful discussions. There are also concerns about the differences in corporate culture. The Dutch have particularly bad experiences with the merger between KLM and Air France. Management and shareholders have been at odds over many issues for many years. Observers can not see the proud ABN AMRO bankers operating in a subordinate role compared to Paris. They warn of an ‘execution risk’ if it ever comes to a merger. The rescue of ABN AMRO in 2008 cost the Dutch state 21 billion euros. In 2015, the government decided to partially privatize the bank through a stock exchange listing. She still owns 56 percent of the shares. To get the full amount back from the rescue, the Dutch government had to receive 26 euros per share, calculated Het Financieele Dagblad. With a share price of 10 to 11 euros, however, there is little chance that BNP Paribas will be willing to pay a significantly higher purchase price. Will the Netherlands choose to close the ABN AMRO file at a loss? The soaring inflation and rising interest rates could put the economy under pressure. At the same time, there is a risk that more and more companies and citizens will no longer be able to repay their loans. The combination of declining credit demand and increased loan losses may lead to a decline in the profitability of banks.