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The Spectator: The case for going Dutch

Published: Wednesday 28th March 2007  

My paternal ancestors were Flemish silkweavers, but they had already migrated over here and set up shop in Norwich some time before the foundation by royal decree, in 1824, of Nederlandsche Handel-Maatschappij, the oldest forerunner of the Dutch banking group ABN Amro.

Nevertheless I’d like to think I might have had a distant cousin who was an early customer there – and regular readers will already know that I have a rather complicated two-generation relationship with Barclays Bank. For these tribal reasons, rather than analytical ones, I found myself inclined to join the minority of City commentators in favour of the proposed merger between Barclays and ABN Amro, which would create the world’s fifth largest international bank. On closer examination, the analytical reasons stack up as well.

The dissenting majority, including some fund managers who hold large blocks of Barclays shares, are worried that Barclays chief executive John Varley – the prime mover of the deal – will not be able to extract sufficient cost savings and synergies from the merger to justify a putative £80 billion price tag. Others claim that Anglo-Dutch mergers in general have ‘an unhappy history.’ Bizarrely they cite the examples of Royal Dutch/ Shell, which celebrates the centenary of its robustly successful partnership this year, and Unilever, the 77 year-old marriage of British soap and Dutch margarine which remains one of the world’s leading consumer-brands conglomerates.

It’s true that international mergers create uncomfortable management structures – my old colleague Varley, a natural diplomat if ever there was one, has apparently already agreed to move his own office to Amsterdam and to work under a Dutch chairman. They also give rise to interminable culture clashes which tend to undermine efforts to promote the best people and adopt the best products and processes from either side. But that can be equally true of domestic mergers. What really matters when one bank takes control of another is not whether the computer systems are compatible or whose portraits hang in the boardroom, but how many skeletons are lurking in the loan portfolio and whether there’s a black hole in the trading book.

I’m sure those are the questions Varley will address first – perhaps with particular attention to ABN Amro’s Chicago-based subsidiary Lasalle, which has a $124 billion balance sheet and claims to be the Midwest’s premier middle-market bank. The Barclays team will no doubt recall that the acquisition of a premier middle-market bank in California called Crocker National almost destroyed the once-mighty Midland Bank (now part of HSBC) in the 1980s – and must be acutely aware that today’s business pages are full of scary predictions about imminent disaster in the US mortgage market. If I were Varley I would certainly send my sharpest bad-loan detectives on a US tour before accepting any assets over there as part of ABN Amro’s global bundle – and I’d be especially cautious if the words ‘real estate’ appear anywhere in the US subsidiary’s annual report.

With that note of caution in mind, what’s to be said in favour of Barclays and ABN Amro getting hitched – apart, in my case, from the deal’s sentimental appeal? First, a further round of big-bank mergers is inevitable in response to both shareholder hunger for the higher returns promised by economies of scale and management hunger for market dominance. But seen from the point of view of British retail banking customers, it will almost certainly be better if that consolidation takes place across borders rather than by reducing choice within the domestic market. And from the point of view of shareholders, it will almost certainly be better if it takes place across the North Sea rather than across the Atlantic Ocean, because not only is the North American banking market full of bear traps but the European banking market still offers huge possibilities for integration—the Holy Grail, if Brussels can force member states to co-operate, being the Single European Bank Account which would operate exactly like a domestic account across the entire Eurozone.

Finally, if Barclays is setting out to pick a continental partner, the Dutch have much to recommend them. As bankers, they are regarded as sensible if a touch dull (that’s a complement to a banker) and to have considerably smaller egos than their British and US counterparts. It was ABN Amro’s competitor ING that salvaged the wreckage of Barings after its 1995 crash and rebuilt a decent business out of it; but it would be hard to imagine any Dutch banker, however good at his job, expecting to be paid £22 million for a year’s work to match Barclays’ American-born, supersized-ego investment banking chief, Bob Diamond.

And as a nation, the Dutch may have an unpronounceable language but most of them speak perfect English – and in many other respects they are just what we’d like the English to be: responsible citizens who are careful with their money and rarely prone to over-excitement or personal excess. I should know: ancestrally speaking, I’m almost a Dutchman.
 

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