Stock of the Day
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ABN Amro Holding (ABN)
ABN Amro Holding Soars on Talks of Merger
ABN Amro shares jumped nearly 10 percent in morning trading today on rumors of a potential merger with British banking giant Barclays (BCS: Charts, News, Offers). The Dutch banking group had been featured in a series of news reports over the weekend hinting at the partnership deal, inciting investors to take action when the markets opened today. A merger uniting the two would create an international banking behemoth with a market capitalization of about $156 billion. What has brought these banking institutions together and how is each set to gain should the deal go through?
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| Stock Analysis |
This morning's early advance in ABN's stock price pushed it to a new record high as investors weighed the news of a possible merger. ABN, the largest bank in the Netherlands, has been the target of pressure from its shareholders due to recent laggard performance against its peers. Some of the more vocal proponents of a merger or acquisition have come from groups such as the Children's Investment Fund, which called for changes in February after ABN posted results showing a 9 percent increase in shares for 2006, compared to peers such as Barclay's who saw more than a 21 percent increase. Analysts agree that there's no time like the present for a merger or break-up for ABN, adding that a partnership with Barclays will have both strategic and geographic benefits for the pair.
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Though ABN is based in the Netherlands, it operates in the Asian markets of India, Singapore, Hong Kong, Taiwan, China, Pakistan, Indonesia and Malaysia. Barclays, on the other hand, doesn't maintain any kind of retail or commercial banking presence in this region aside from operations in India, where they plan on opening a wealth-management division this year. The Asian-Pacific region, driven mainly by India and China, has generated significant returns for ABN, where consumer-banking increased by 18 percent to 3.3 million in the last year and the number of credit cards issued rose by 19 percent to 2.8 million. Barclays, who is just now seeking to tap this market, would greatly benefit from ABN's presence which consists of 28 branches in India alone. ABN was also the leading merger advisor in India last year, brokering 36 percent of the deals there.
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But Barclays isn't talking just yet. A spokesperson for the bank will not be making any announcement until just before markets open on Tuesday, leading investors to believe that some kind of news is imminent. An affirmative statement, though, could ignite a bidding war among other European banks who have also expressed interest in ABN at some point in time. Potential suitors vying for the bank or its divisions include Dutch rival ING Group, BNP Paribas of France, BBVA (BBV: Charts, News, Offers), Banco Santander (STD: Charts, News, Offers) of Spain, and Royal Bank of Scotland. Should Barclays get caught in a battle for ABN, however, analysts are not sure that they would have the staying power to afford a high premium. They believe that other banks might have more to gain in synergies, whereas Barclays may have to sell portions once merged. Investors are already anxious over tomorrow's announcement and have sent both stocks up in this morning's trading.
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Profile |
The Company's principal activity is that of an internationally operating bank which was formed following a merger in 1990 of the two largest publicly quoted banks in the Netherlands namely ABN and AMRO Bank; the objective of the group is to provide all kinds of banking services in the Netherlands & abroad. The bank provides worldwide services to certain customer groups in specific fields such as corporate finance, securities, treasury products and facilities, trade and commodity financing, leasing and private banking. The Company's principal activities are the provision of a range of private and consumer banking and insurance services through the following divisions: WHOLESALE CLIENTS: global investment banking and corporate investment banking activities; CONSUMER & COMMERCIAL CLIENTS: retail, Small and Medium-sized Enterprise clients; PRIVATE CLIENTS & ASSET MANAGEMENT: asset gathering activities of the private banking and fund management businesses.
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