Sole Bidder Likely To Drive Abn Price Down

Sydney Morning Herald

Thursday July 24, 2008

Danny John

COMMONWEALTH BANK is expected to drive down the price expectations of the current owners of the Australian operations of ABN Amro to as low as $500 million after entering exclusive talks to buy the investment banking and equity trading business.

With analysts now dismissing previously suggested values as high as $1.3 billion, CommBank will be keen not to pay too much for the institutional market player after its major bidding rival, National Australia Bank, pulled out of the auction on Tuesday.

Australia's largest domestic banking group emerged as the most likely - and at this stage the only remaining - contender for ABN Amro's Sydney-based business after announcing yesterday that it was negotiating directly with the Royal Bank of Scotland about acquiring the division.

RBS was part of a consortium along with the Dutch bank Fortis and the major Spanish financial institution Santander which recently bought ABN Amro and its global subsidiaries for the equivalent of $100 billion in the largest-ever banking takeover.

Since then, parts of the group have been put up for sale as the consortium looks to recover some of its acquisition costs.

Asked about what price CommBank would end up paying, a spokesman said he couldn't talk about such issues given they were part of confidential discussions.

Observers said CommBank would be acutely aware of the lower valuations now attached to investment banking businesses because of the turmoil in financial markets and the lower earnings being generated.

Goldman Sachs JBWere said last night price would be the key element - a view that tended to support a recent report by the broking firm Wilson HTM that the ABN Australian division might only be worth as much as $450 million.

Buying the Australian global markets, investment banking and stockbroking division, though, would make CommBank the largest such player in the domestic financial services industry.

It would also strengthen Commbank's grip on the retail broking market, teaming ABN's network across Australia and New Zealand with CommSec, the biggest player in the online stockbroking field.

If the deal goes through, the ABN business would be folded into CommBank's Premium Business Services, which is run by executive director Stuart Grimshaw. It is responsible for the bank's institutional and corporate operations as well as CommSec.

The exclusive negotiating period is about four weeks.

Given the rather tortuous process to date, market watchers indicated it was not a done deal. The bank suggested as much in its statement to the ASX yesterday. "The proposal is incomplete, subject to further negotiation and subject to signing a final, binding agreement," it said.