But no matter how the work is divided up, the sheer complexity of breaking up ABN Amro is daunting. Each part of the transition plan drawn up by the consortium and ABN’s management has to be approved by the Dutch National Bank, adding another layer to an already complex process. And there are still decisions to be made on a string of assets which Fortis has to sell to satisfy competition authorities. Last November, Anne Drummond of Linklaters — an adviser to the consortium — told CFO Europe that taking apart ABN would take years.
In terms of the integration, Karel de Boeck, former risk officer at Fortis and now a vice chairman on ABN’s managing board, told the Belgian press that from the outside the integration “could be called impossible.” De Boeck should know. He’s helping to oversee 15 steering groups, which are handling 125 integration programmes, comprising more than 1,000 projects.
Following regulatory approval in the Netherlands in March, ABN’s asset-management business was demerged and brought into Fortis the following month. The break-up and integration of the other businesses will be staggered until the end of 2010. Activities due for completion this year include demerging ABN’s factoring and leasing divisions and several of its private banking units. The demergers of private banking in Jersey, Belgium, Gibraltar and Taiwan are scheduled for next year, with the Dutch businesses to go after those.
All told, Fortis expects €1.3 billion in synergies by the end of 2010, with more to follow. More than 80% of that figure will come from cost synergies in areas such as merging branches where the banks have outlets on the same street.
Unfortunately for Fortis, these well-laid plans must contend with the messy reality of the credit crunch. Last year, Fortis’s banking profit dropped 44% due to subprime impairments, and in the first quarter of this year its banking division incurred further impairments of €366m, two-thirds of which were linked to subprime assets. In June, Fortis shares were trading at around €13, compared with more than €20 when the ABN deal was agreed and almost €30 in early 2007. (See “Don’t Look Down” at the end of this article.)
Although the price the consortium paid for ABN looks less reasonable by the day, Mittler dismisses the idea that the bidders should have renegotiated. “That was the price at the time,” he says. “We’re convinced that the quality of the assets we bought is high.” By way of justification, he points out that ABN’s 2007 results were above Fortis’s forecasts.
A recent study by the Boston Consulting Group should add to Mittler’s confidence. It concludes that deals made during economic downturns are twice as likely to produce long-term shareholder returns of more than 50% as deals made in a boom. But Fortis’s exceptionally large deal amid exceptionally turbulent credit markets could still come unstuck. “I would be surprised if those [multibillion-euro deals] that were carried out in the last year or so manage to capture the synergies they planned,” says Boschetti at Towers Perrin. “They certainly have a steeper hill to climb.”