Credit Crisis Scuppers Abn Sale

Sydney Morning Herald

Thursday August 14, 2008

Danny John

THE Royal Bank of Scotland has abandoned plans to offload the Australian division of ABN Amro, and will merge the business with its Sydney operations after yesterday's surprise decision by the Commonwealth Bank to pull out of buying the business.

Having been knocked back by other buyers including National Australia Bank, the Royal Bank of Scotland has had to retain the investment banking and broking unit that came with last October's purchase of ABN Amro's global operations.

Royal Bank and its consortium partners, Fortis and Bank Santander, have been dividing the Dutch group's businesses between themselves and selling off unwanted parts to recoup some of the $100 billion acquisition costs.

Commonwealth was in the box seat to buy ABN Amro Australia for a rumoured $450 million after exclusive sale negotiations with Royal Bank last month.

A deal was expected within weeks but the Commonwealth withdrew from the talks after claiming its ability to refinance the business through international credit markets was undermined by the recent bad debt write-offs by ANZ and NAB.

The Commonwealth's chief executive, Ralph Norris, said news of $2 billion-plus of additional provisions by Australian banks had damaged the standing of local banks, which otherwise had appeared to have weathered the worst of the global credit crisis.

The CBA decision had nothing to do with the purchase price of ABN Amro, Mr Norris said, although the bank had not agreed final terms. It was the bank's need to raise additional funds to cover ABN's liabilities and the cost of new facilities that forced the change of mind.

"We came to the conclusion [on Tuesday] that, given where markets are, it would not be prudent to go ahead with the due diligence," Mr Norris said.

The Commonwealth was also concerned about the difficulties in integrating such a complex operation into its corporate division at a time when it is dealing with the impact of the slowing economy on its business.

The decision was a blow to the Royal Bank and the Commonwealth as the Australian bank would have become the largest player in domestic investment banking if the purchase had gone ahead.

Royal Bank said it had always been an option to retain ABN Amro and put its two Australian units together.

But there is little overlap between Royal Bank's debt financing and risk management business and those of ABN, and the merger will be a difficult process and one the British bank would have preferred to avoid.