Under the knife RBS is conducting an unprecedented operation. Can

0 Comments | Sunday Herald, The, Feb 17, 2008 | by Colin Donald in Amsterdam

AT the ABN Amro head office in Zuidas Amsterdam's futuristic new business hub on the southern outskirts lights burn long into the night.

The area was planned in the 1990s around this monument to Dutch financial power. That centrepiece has now fallen. The building is now field headquarters to a Scottish-led invasion force.

Right now the ABN building is occupied by Mark Fisher, previously the Royal Bank of Scotland's (RBS) back-office wizard, picked by RBS boss Sir Fred Goodwin as interim chairman of the ABN holding group on November 1 last year. He and RBS's crack integration team now occupy the plushest offices.

Eventually the building will be be inherited by Fortis, the Benelux lender which, along with RBS and the Spanish Banco Santander, formed the hostile consortium that bought ABN Amro for GBP49 billion last October. The biggest bank deal in history and arguably the worst-timed it trumped a friendlier GBP43.7bn bid by RBS's UK rival Barclays.

In the midst of the worst financial turmoil seen for a generation, Fisher and co are awaiting permission from the Dutch central bank to divide the spoils of the Dutch giant in pursuit of a promised GBP1.2bn of cost savings.

Before they do, Goodwin will this month announce RBS as the first Scottish company (and second UK bank) to earn more than GBP10bn in annual profits.

Then come the details that will at last make retrospective sense of this audacious operation.

RBS-watchers have been fully occupied in recent weeks hypothesising on the bank's bombed-out share price and speculating on its degree of buyer's remorse. The market has dwelt painfully on the Scottish lender's threatened capital ratios and the chances of a rights issue slim, by most reckonings.

Details of the break-up will allow RBS to direct attention to Asia, where ABN assets give their inheritor instant scale in hard- to-penetrate markets.

RBS, now number one in Europe for corporate banking, has become number five in Asia Pacific (excluding Japan) for corporate banking and has entered the top five in the world for transactional banking.

How will the bank's takeover of a modern Dutch trading empire play out in practice? And if and when it weathers the current storm, how much benefit might the Asian assets bring in the coming age of decoupling, when Asian markets start to set the global pace irrespective of US subprime lenders?

FISHER, 47, who has moved to Amsterdam for three years, is the former NatWest executive whose skill at integrating that bank with RBS has made him an industry legend. His genius is for "working the back end", finding synergies and creating efficiencies in the once unglamorous, now increasingly central banking function of back- office operations.

This time he has a more delicate diplomatic task, one never before attempted anywhere. It must be conducted in front of an audience of regulators, employees, works councils (corporate stakeholders groups) and massed ranks of market sceptics. The surrounding market conditions could hardly be worse. Inevitably, employees of Barclays crow loudly that they are glad they lost. Much rides on the steadiness of Fisher's hand as the temperature rises.

Open hostilities over ABN ceased last October, but there are still no cheerleaders in Amsterdam or The Hague for the break-up of their flagship financial brand. ABN is omnipresent in the Netherlands, from the arrivals hall at Schiphol airport to the building opposite the Royal Palace in Amsterdam's Dam Square. It was inconceivable that it would fall out of Dutch control.

One British ABN equities trader, senior enough to merit a one-to- one briefing on the integration from RBS head of global markets and heir apparent Johnny Cameron ("completely pragmatic, enormously intelligent"), says: "I sat next to the chairman of a Dutch sports manufacturing company the other week and he was practically in tears about ABN. The sense of national loss is enormous." From the cool, blow-your-bonus bars of Zuidhas to the panelled chambers of the Amsterdam stock exchange, Goodwin inspires grudging Dutch respect. The man Fisher has usurped on ABN's top floor, Rijkman Groenink said to have pocketed more than euros26m (GBP19.5m) before retiring to a converted windmill near Hilversum has become a national hate figure, "the man who lost ABN Amro".

Socially liberal, the Dutch are notoriously tough in business matters, as the board of Scottish & Newcastle will attest after Heinkeken's recent joint ambush with Carlsberg. There is a strong aversion here to rewards for failure, and there is a violent backlash against the complacent mismanagement that made ABN so vulnerable.

"We in the Netherlands admire the fact that Fred Goodwin is so ambitious and has built an empire, " says one official of the Amsterdam stock exchange, speaking anonymously. "Groenink was brought in in 2000 to shake up ABN's old-boy traditions but missed his own targets repeatedly and just kept changing them. Why was he allowed to do it?

We see Goodwin as a man who doesn't break his promises. He's a good banker." With their own jobs now on the line, few ABN personnel have much good to say about the pre-takeover management. One source on ABN's US and European equities trading department a key addition to the RBS portfolio told the Sunday Herald of a cushy, cost-heavy culture rife with "cultural mismatches" between Dutch and nonDutch personnel. On the eve of the bid, ABN's cost-income ratio was 89- per cent, compared with RBS's 42-per cent.