Page 410 - The Case Lab Book

Efficiency ratios across ABN’s business units had continued to lag behind peer banks.
ABN’s outsourcing and other efficiency/productivity initiatives of the previous years
weren't enough to accelerate earnings growth or produce a higher share price. In fact
between 2000 and 2006, the ABN stock price had remained stagnant. The financial
results for the financial year 2006 added to concerns about the bank's future. Operating
expenses increased at a greater rate than operating revenue reflecting greater
operating results difficulties. The efficiency ratio deteriorated further to 69.9%. Non
performing loans increased considerably year on year by 192%. Net profits were only
boosted by sustained asset sales.

ABN had developed a strategy of having three home markets: The Netherlands, the
United States, and Brazil. The U.S. commercial banking operations of ABN consisted of
LaSalle Bank in Chicago, Illinois, and LaSalle Bank Midwest in Detroit, Michigan which
operated under the name LaSalle Bank Corporation. In Brazil, ABN's subsidiary was
Banco Real.

In 2005 ABN AMRO acquired Banca Antonveneta of Italy; this effectively gave it a
fourth home market. Antonveneta had been a cooperation partner for some years and
had a similar client base to ABN AMRO. However, for many, such as TCI, the Banca
Antonveneta acquisition was seen as a costly mistake.

The Battle Opens

Discussion with Barclays, Britain’s third largest bank, who planned to keep ABN largely
intact, began in March 2007. However, the 19 March saw talks between Barclays, and
the Dutch bank's board leak and Sir Fred Goodwin, CEO of the Royal Bank of Scotland
enter the fray.

Sir Fred put together a consortium, meeting clandestinely, Jean-Paul Votron, of
Belgian/Dutch bank Fortis and Emilio Botin, of Spain’s Banco Santander, plus one of
their main investment banking advisers, Andrew Orcel, the head of global originations at
Merrill Lynch, at the Four Seasons hotel in Geneva. Here the outline of the consortium’s
bid strategy was formulated.

Consortium % share of ABN Country
Provisional Division
Royal Bank of 38.3 UK
Scotland
Fortis – 33.8 Belgian - Dutch
Bank/Insurance
Banco Santander 27.9 Spain

Under the terms of its deal, RBS would get LaSalle and ABN's wholesale banking and
corporate finance business, as well as Asian banking and any European banking
outside Italy and Holland.