The ABN Amro/Mellon custody joint venture, which has already been called into question by the Bank of New York takeover of Mellon, faces further uncertainty today with the confirmation of the rumor that ABN AMRO is in exclusive discussions to merge with Barclays.
If successful, the deal would be the largest cross-border merger in the banking industry, creating a company with a market value of more than $155 billion.
ABN Amro has been seen as a potential takeover target for some time. Before this announcement, there was speculation that Bank of America might acquire it. ABN Amro’s share price has continued to trail other banks, despite immense staff cuts, rationalization of its business, and business sell-offs. The bank sold its prime brokerage business to UBS and its sub-custody to Citigroup, on top of the joint venture with Mellon.
Barclays, on the other hand, exited the global custody business a decade ago by selling its business to Morgan Stanley (who then sold it on to Chase), but retains a sub-custody network in Africa, which it is expanding. Barclays also owns an investment bank (Barclays Capital), which could be merged with the investment banking arm of ABN Amro, which includes former UK independent stockbroker Hoare Govett.
Both banks are also powerful in cash management, foreign exchange and payments and would create a rival for Citigroup.
In a statement, Barclays and ABN confirmed that they were in exclusive discussions with regard to a merger, but warned that the talks were at the exploratory stage.
The banks also added that the holding company of the combined entity would be a UK incorporated company (PLC) with a primary listing on the London Stock Exchange and secondary listing on Euronext Amsterdam.
The new entity would have a UK unitary Board and clear governance and management structures. The first chairman would be nominated by ABN AMRO and the first chief executive officer would be nominated by Barclays. The head office for the combined entity would be located in Amsterdam.
Discussions have also been initiated with the UK, Dutch and other relevant regulators as regards seeking the Dutch Central Bank (DNB) to act as lead regulator for the combined entity.
Perrine Fiorina, an analyst with Celent, the financial consulting and research firm, says that “the merger of these two top world banks will create a European giant, which will be able to face competition with Asian and American global banks. The merger between Barclays and ABN AMRO is a good fit, which will enable both banks to broaden their client base across Europe and at a global level. This news also illustrates the emerging trend that European cross border mergers are becoming mainstream in the financial service industry.”