After almost three years of mergers, break ups and government bailouts, Fortis Bank Nederland and ABN Amro have combined to produce a Dutch bank set to be a powerful force in trade finance, writes Michael Turner.
ABN Amro and Fortis Bank Nederland merged to form a new bank on July 1 and look set to establish themselves as a key player in trade finance.
The merger created the new combined bank of ABN Amro and Fortis Bank Nederland, which operates under the ABN Amro name.
The new bank is still owned by the Dutch government, just as its component banks were before the merger, and the Dutch government has announced that no sale will take place before 2011 at the earliest.
The government hopes that this will secure a good price for the bank after the entire rescue plan for Fortis Bank Nederland cost Dutch taxpayers approximately US$13bn.
GTR spoke to the global heads of commodities at Fortis Bank Nederland on the cusp of the merger to discover the implications for both banks, as Piet-Hein Ingen Housz, global head of metals commodities, explains: “ABN Amro and Fortis Bank Nederland are a great fit for the merger. If you look at ABN Amro, basically the whole merchant bank went to RBS when ABN Amro was split up, and a significant portion of the Fortis Bank Nederland merchant bank was based in Holland so the two banks will be able to integrate that part of their business in a very nice combination.
“On the retail side, ABN Amro was very strong while Fortis Bank Nederland’s market share was relatively low, so this is a good match. It means that retail will provide funding for merchant banking and our balance sheet looks much better in terms of liquidity.”
While the merchant and retail businesses of the two banks are complementary to each other; where ABN Amro was strong, Fortis was weaker and vice versa, issues arose in the commercial banking department as both banks had a roughly equal market share, as Ingen Housz remarks: “In commercial banking with companies whose total sales vary from US$30mn to US$250mn, we have an equal position between ABN Amro and Fortis Bank Nederland. All of those companies usually have more than one bank so we probably lost a little market share there if clients bank with both us and ABN Amro.”
Ingen Housz downplays the future effect it could have, as companies that could be affected have been aware of the merger for a significant amount of time now: “The merger was announced a year ago, so we don’t think we will lose additional market share because the companies would have already decided to go to other banks.”
The merger comes after a period of extreme volatility for both Fortis and ABN Amro, after Fortis successfully acquired the retail and private banking businesses of ABN in October 2007 via an RBS-led consortium, only for Fortis to dissolve, resulting in two separate entities of Fortis Bank Nederland and Fortis Bank Belgium.
The fallout from the breakup of Fortis left ABN Amro as a separate unit once more, and eventually open to talks with Fortis Bank Nederland for a possible re-merger.
Harris Antoniou, global head of energy, commodities and transportation, talks to GTR about the essential decisions that Fortis Bank Nederland made in the wake of the split between the Belgian and Dutch factions of the bank: “We went through a rough patch after the split but the organisation was really fast in deciding what the priorities were and it’s been fantastic. One of the immediate priorities was the establishment of an international network. We started implementing a project called Fortis Bank International a month or two after the split from Fortis Bank Belgium with the aim to re-establish part of the international network of the bank and to be able to fulfil the requirements of the clients.“
The Fortis Bank International project has shown a great deal of success, setting up offices in major trading hubs around the world including Hong Kong, Singapore, Dubai, Athens, Oslo, New York and Sao Paulo, as well as maintaining the core businesses in the Netherlands.
“Within the space of a year, we’re fully up and running in all time zones, Asia, Europe and the Americas, with representative offices but also, importantly, booking locations; bank branches. So we are fully up to speed, servicing clients with the handling of documents, LCs, and having the back-office ability to service our clients locally,” Antoniou adds.
Although Fortis Bank Nederland now has a global presence which is well placed to serve emerging markets, the bank has stringent selection criteria for start-up businesses gaining financing from them, as Bruno Gremez, global head and managing director commodities energy, attests: “We facilitate the business of start ups very selectively. We don’t want to finance start ups for the sake of financing them. Instead we look at the background of the founders involved, who often have 20 to 25 years of experience, their contacts and strong network. Basically, we look closely at the factors that will ensure their future success.”
Furthermore, the state of the Dutch economy, which has managed to bypass many of the harsher austerity measures implemented by some of its European neighbours, will play a part in the growth of the new ABN Amro says Ingen Housz: “For a great deal of our business we really are a domestic Dutch bank. The Dutch economy is, for European standards, doing pretty well. Small growth perhaps, but the government has the debt issues under control. We will show a good operational performance because of the quality of the assets of the banks. We don’t have CDOs or any exposures to the more vulnerable assets. The merger will make a strong bank with room to grow internationally because we want to have a better balance between what we do in Holland and what we do internationally.”
As well as the ongoing support offered by the Dutch government, ECT global head Antoniou is keen to emphasise the other areas that will set the new bank apart from its competitors: “The strength of the business model that we have at Fortis Bank Nederland is to combine everything into one entity. Many banks now have a split between, for example, origination and back office, but by combining everything into one entity, all the way from origination to portfolio management, from transaction services right up until execution, all commodity infrastructure is in one place. This is what we call the ‘golden triangle’; origination, documentary credits and collateral management.
“In Fortis Bank Nederland, commodity infrastructure is closely integrated; all the people sit on the same floor so the relationship manager can talk to the back office and solve problems internally. We have authority and leverage internally, so people are able to help clients on the spot when issues arise.”
Furthermore, Fortis Bank Nederland looks to use the golden triangle to be involved in the commodity production chain from extraction right through to distribution, as Antoniou continues: “The concept of grouping energy, commodities and transportation together is to be involved in every single part of the commodities flow and that gives us a unique perspective and insight into the risks that clients take. We see our clients expanding horizontally, you see people going from pure trading into asset-heavier mode, oil trading companies moving into storage assets or shipping assets, and we help them along the way in acquiring these assets.”
However, this is just a part of a much more fundamental ethos at the bank, as Rick Torken, global head, agricultural commodities, explains: “Financing trade is in the DNA of both ABN Amro and Fortis Bank Nederland and in times of trouble, the DNA of a bank comes back with a vengeance. Classical banking is becoming very fashionable again and in banks like Fortis Bank Nederland and ABN Amro, the love for the sort of business that we’ve been doing since the Dutch golden age is very strong. We see our business growing very rapidly. In soft commodities, for example, we’re getting back to the level we saw before the split (of Fortis Bank). We have a lot of growth potential in North America, Southeast Asia and Brazil, where we have been seeing a lot of growth, and Argentina, where we have seen growth even in the current circumstances in the country. We have a huge history in this bank of being involved in the trade business and so it is only natural that this is now a focal point and will lead to expansion again.” GTR