The Acquisition of ABN AMRO (B)


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Case Details:

Case Code : BSTR346
Case Length : 23 Pages
Period : 2007-09
Pub Date : 2009
Teaching Note :Not Available
Organization : ABN AMRO / Royal Bank of Scotland / Fortis / Banco Santander Central Hispano
Industry : Banking / Financial Services
Countries : UK, Belgium, Spain, The Netherlands

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Almost all their losses are in the subprime markets in America and related to the acquisition of the bank ABN AMRO. And these are irresponsible risks which were taken by a bank with people's money in the United Kingdom." 1

- Gordon Brown, Prime Minister, UK, in reference to RBS, in January 2009.

"The acquisition was fine in a bull market, but in a market that was in a rapid downturn, there was a question mark as to whether we could afford it and whether we should afford it. That led to doubts by shareholders which meant we had to be supported by national governments to support our balance sheets." 2

- Rick Denton, Director, Marketing & Business Development, Fortis, Guernsey, UK, in April 2009.

"The deal was overpriced, very badly timed and relatively indefensible." 3

- Alex Potter, Collin Stewart4, in October 2008.

Introduction

On January 19, 2009, hard on the heels of an announcement by the UK-based Royal Bank of Scotland (RBS) of a potential 28 billion5 loss for the year 2008, the bank's stock price plunged by 66%. The price fall led to a loss of 9 billion of its market capitalization. RBS shares closed at 11.6 from its previous day closing price of 34.7. Till early 2009, this was the largest loss declared by any company in British corporate history. The unprecedented loss triggered criticism about RBS's management from its shareholders and the regulators. RBS attributed most of the losses it had incurred in the fiscal year 2008 to its acquisition of ABN AMRO in late 2007.

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1] Martin Waller and Dearbail Jordan, "RBS Shares Rise Despite Nationalization Threat," http://business.timesonline.co.uk, January 20, 2009.
2] Simon Tostevin, "Fortis Splits into Two," www.thisisguernsey.com, April 30, 2009.
3] Simon Duke, "RBS Haunting Legacy of ABN Deal," www.thisismoney.co.uk, October 02, 2008.
4] Founded in 1991, Collin Stewart is an UK based financial advisory firm.
5] On October 09, 2009, 1= US$ 1.59831.


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