Well, just today a fascinating and surprising bank crisis development has happened involving my present home country, The Netherlands.
Briefly, a Belgium bank, Fortis together with Santander, the Royal Bank of Scotland bought ABN-AMRO ... a fantastic, solid Dutch bank for 71 billion Euros (+-$100 billion)!
Recently, for many reasons I'll not go into here, Fortis came into serious problems because they paid too much for their part in the ABN-AMRO acquisition. Their have shares plummeted over 80%% in past two weeks.
Today, the Dutch government announced it would buy ABN-AMRO from Fortis for 16.8 billion Euros (+-$24 billion). So, ABN-AMRO will be nationalized by the Dutch government representing their taxpayers. The Dutch, for different reasons, are following a variation of the Swedish nationalization of their banks in 1992 (involving a similarly serious financial banking crisis as in the US now).
What are the differences? First, ABN-AMRO is not at all afflicted with the Sub-Prime mortgage virus. ABN-AMRO is a modern as well as traditional, profitable retail and private bank with a record of solidity and outstanding service for their clients. Historically for over 14 decades, ABN-AMRO has played a very important role in supporting Dutch companies of all sizes and types.
So why did the Dutch government take this quick step to nationalize the bank? The main reasons are to bring some calm to the bank's further developments in a hectic financial climate; to prevent a foreign bank or equity group from taking over the ABN-AMRO as it is felt such outsiders would not respect or fit harmoniuosly with the Dutch banking system and culture. Equity investors were not an option it was felt banking is too complicated a business for investors without a deep knowhow.
So now the Dutch government will assign a Board of Directors and will have Oversight of ABN-AMRO for 3 to 4 years. The current management structure is sound.
The plan then is to go public with the bank -- precisely as was done in Sweden --when the current financial crisis has subsided and share market conditions are much improved.
Currently, ABN-AMRO's profitability yields a 10% annual return on the Dutch government's (taxpayers') acquisition price of 16.8 billion Euros. And Fortis receives a much needed substantial capital injection.
All in all, a tremendous deal for the bank, for its employees and customers, and ultimately very promising for the taxpayers ... as the purchase price is less than 10 times earnings.
The Swedish nationalization model happening in my adopted country brings home the global interconnectedness of the MESS created in America.
Frank Thomas, The Netherlands
Friday, 03 October, 2008
Frank Thomas added the following note:
"I should note that the Dutch government bought from Fortis the ABN-AMRO Holland operations. The rest of the bank's foreign operations will be integrated into Fortis. In effect,
Fortis paid 23.7 billion Euros for ABN-AMRO's Holland operations which the Dutch government (taxpayers) has just purchased for 16.8 billion Euros, or 30% less. No bad!"
Posted by: John Lawrence | October 05, 2008 at 02:16 PM