Spotlight on RBS as broker suggests major acquisition - Markets - Times Online

Spotlight on RBS as broker suggests major acquisition - Markets - Times Online: "Spotlight on RBS as broker suggests major acquisition
Bryce Elder

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Royal Bank of Scotland stood out in an ugly day on the markets on suggestions that the lender should consider making a £36 billion hostile bid for ABN Amro.
The genesis of the story came in a research note from Citigroup, which argued that RBS had done all the obvious things over the past two years to try to realise some £10 billion of unrecognised value on its balance sheet. Management has improved communication to the City, focused on organic growth and bought back shares, yet the stock has still underperformed the European banking sector by 30 per cent over the past two years.


That led the Wall Street broker’s team to consider whether more radical action would help. First, it pondered if RBS could sell its American division or its insurance arm, which includes Direct Line and Churchill. Then it asked whether RBS could reverse its strategy of no big acquisitions.
On the break-up option, Citigroup concluded that there would be too many complications to make a clean split. Yet it saw value in the latter route, arguing that RBS’s geographic and business overlap with ABN Amro would generate cost savings of £1.8 billion. And RBS’s takeover of NatWest in 2000 shows that the board could handle the task. “There are many banks in the world for which an acquisition of ABN Amro would make financial and strategic sense, but we believe RBS could realise higher levels of synergies than almost any other bank in the world,” Tom Rayner, an analyst, told clients. “We believe that the industrial logic of such a transaction is clear, and furthermore believe that RBS has the necessa"