by Iain Martin
Tom McKillop wanted Fred Goodwin to tell him about ABN Amro. The RBS chairman broached the subject in a phone call one evening early in January 2007, from his flat in Chelsea. Was there any substance in these rumours circulating in the City that they – RBS – might be interested in buying the Dutch bank? It was being said that Goodwin had even had discussions with the ABN Amro chief executive Rijkman Groenink. Goodwin was supremely relaxed: ‘Groenink? Oh, I’ve been talking to him for ages and keeping the door open in case we can do something.’ Parts of the bank he ran are a perfect fit with us, he told McKillop.
The chairman wasn’t sure. Not only had the board recently committed the bank to pursuing ‘organic growth’ in their existing businesses rather than launching expensive takeovers, McKillop thought that the organisation lacked the international experience and talent to swallow a large foreign bank such as ABN Amro on its own. If other banks might be persuaded to join in and divide the spoils, that was another matter. Still, it was good to keep talking; you never knew what might emerge from such discussions. Even though RBS had been put in the ‘sin-bin’, as investors and journalists called it, as the result of Goodwin being deemed to be ‘acquisition crazy’, any bank with ambitions keeps an eye out for takeover or merger opportunities.
In January 2005 there had been a few rumours that the Royal Bank might be interested. On that occasion, Groenink had dismissed the speculation, telling guests gathered at a New Year reception1 that ‘the only Scotch on offer is at the bar’. Despite this rebuff, the name ABN Amro sat discreetly for years on RBS’s long list of potential options for review, in case something changed. Says a board member: ‘It wasn’t an idea that was plucked out of the air, and everyone thought, God that’s a weird one. It had been bandied around internally and externally as an obvious fit for us, or indeed for Barclays.’ Banks on the prowl keep an eye on each other. Rival chief executives might meet for lunch or drinks several times a year in order to maintain a channel of communication, in case a deal with a rival that was once unthinkable should suddenly become feasible. There can be an added piquancy to these ostensibly polite encounters in that it is sometimes unclear which of the two lunching partners will eventually be the eater and which one the eaten. On 31 October 2006, Goodwin had contacted Groenink to suggest they meet. It was obvious that the whole or parts of the Dutch bank – which was flabby and in poor shape with unhappy shareholders – might soon be on the menu, and he did not want Barclays or another rival getting in first. They fixed on a meeting in early January.
In the interim, in December 2006, Matthew Greenburgh and a small team from Merrill Lynch had a meeting with Goodwin, Guy Whittaker and Iain Allan, Goodwin’s head of strategy, to brief them on the possibilities. ABN Amro was a huge group with interests well beyond the Netherlands. Greenburgh, who had been there for the NatWest takeover and many deals in between, told Goodwin and his colleagues that they should start to think more seriously about what RBS might be able to acquire if, as anticipated, discontented shareholders seeking a profit forced a break-up or sale of ABN Amro. Of particular interest to Guy Whittaker, the finance director, was the Dutch bank’s Global Transaction Services division: ‘If you want to move one hundred million euros anywhere in the world quickly they’ve got a great system for doing it,’ Goodwin was told. The business in America, LaSalle, a bank based in Chicago, looked promising too. Both were worth acquiring, in Iain Allan’s view, although the rest of the Dutch bank was not. Like many other European banks, it was just a conglomeration of various inefficient units patched together. Goodwin especially wanted LaSalle. It would fit in neatly with what he was preparing to do next in the United States. He was aiming to bring together the various businesses RBS owned there under the ‘RBS Americas’ brand. That would involve moving against the highly paid Larry Fish at Citizens.
Goodwin was far from gung-ho at the Greenburgh briefing: ‘Fred was cautious, intrigued, interested in LaSalle,’ says one of those present. He said he thought the possibilities were interesting and he would keep open that line of communication with Groenink. If ABN Amro decided to sell its American operations, he wanted to be called first. On 9 January, Goodwin flew to Amsterdam for talks with Groenink. The ABN Amro boss was suspicious. Hedge funds which owned shares in ABN Amro had been agitating for months, sensing weakness and an opportunity to cash in. A takeover battle would probably drive up the share price for the benefit of said hedge funds. Was Goodwin collaborating with one hedge fund in particular? The non-executive chairman of Tosca, the London-based fund which had been making noises, was George Mathewson, wasn’t it? Goodwin assured him that he was not plotting with Mathewson. RBS simply wanted the chance to buy ABN Amro’s American arm if it became available, or maybe a bit more if they could come to an accommodation. They agreed to keep in touch. Groenink told colleagues that he was convinced he was being lied to, and that Goodwin and Mathewson were collaborating to break up the bank he ran. Hadn’t Mathewson suggested to him a few months ago, when the pair met, that the Dutch should explore a merger with RBS?
Like the Royal Bank, ABN Amro was proud of its roots. The Dutch in Amsterdam had been important financial innovators long before the Scots thought of the Darien Scheme or of establishing their own banks.2 Groenink and his colleagues were desperate to avoid the indignity of being the bankers who sold out one of the Netherlands’ longest-established companies to foreigners.3 When he had taken over as boss he had promised growth and down the years he had discussed the possibility of mergers or of taking over various rivals. Those efforts to find a partner had come to little and now he and the bank he ran were being hunted. On 22 February, a hedge fund, TCI (The Children’s Investment Fund management), wrote to Groenink lamenting the ‘terrible shareholder returns’ under his stewardship. It urged the board to pursue a ‘break up, spin-off, sale or merger of its various businesses, or as a whole’.4
That month, more members of the RBS board were introduced to the idea that Goodwin was interested if ABN Amro or parts of it became available. No major objections were raised, although there were questions from Steve Robson and others about how it might possibly work. Goodwin was businesslike and unemotional. It was not a deal they absolutely had to do. He advocated proceeding one step at a time.
While Groenink was determined to avoid being stitched up by Scots he suspected of double dealing, he was prepared to talk to another British bank. For months, John Varley at Barclays and the ABN Amro boss had been discussing a merger that would mean a combined group’s headquarters being in Amsterdam. By early March, the rumours had reached Matthew Greenburgh’s Merrill Lynch team that a deal with Barclays was likely. Goodwin rang Groenink and was assured there was nothing afoot imminently. ‘Groenink’s lying,’ the RBS chief executive claimed to his colleagues. Indeed, on 19 March, McKillop’s birthday, it was confirmed to investors that Barclays and ABN Amro were now in formal and exclusive talks. In the light of this, Goodwin wrote to the RBS board with a clear message: ‘This is not a must do deal’, although he would continue to look at the options. Nonetheless, the pace was being upped. On 28 March at a board meeting in London, head of strategy Iain Allan gave a presentation to the board on the possibilities. It was explained that ‘the execution risk would be high’ and Allan stressed the need to get partners who could help. There were mixed views around the table once he had concluded and departed, although there was general agreement that the whole of ABN Amro would be much too tough to digest. The cost – upwards of 60bn euros – was obviously prohibitive. The consensus was that Barclays had stolen a march and that it was frustrating.
Then Goodwin coolly produced his response. Says a member of the board: ‘It was a rabbit from a hat. Guess what, guys, we can do it. I’ve got a consortium and if we do it as a consortium, we can beat Barclays. And the board looked at him just as they look at Derren Brown (the illusionist). They looked at his left hand and they looked at his right hand, metaphorically, and the whole conversation was are you sure, can we, can we really, has this ever b
een done before, can we do it, will it work?’ Fatefully, the tone was set for all of the subsequent discussions involving Goodwin, McKillop, Sutherland, Robson, MacHale, Cameron, Pell and the others: ‘From that day on, literally from that day on, every board meeting was dominated by “can we do this?”. Insufficient attention was paid to “should we do it?”.’
Goodwin was already well advanced on constructing a consortium. Matthew Greenburgh and his colleague at Merrill Lynch, Andrea Orcel,5 had revealed to him that Fortis, the Belgian bank, might be interested in a tie-up. Santander, run by Emilio Botín, the former board member of RBS and good friend of Goodwin and George Mathewson, was enthusiastic. If the three banks could agree how the spoils might be divided, they could bid and possibly beat Barclays. ‘Fred wanted to be bigger than Barclays. Had to be bigger than Barclays and here was a chance to do it,’ says one of his management team. First, Greenburgh and Orcel knew, Goodwin had to ‘click’ with the chairman of Fortis, Maurice Lippens. Lippens had read about ‘Fred the Shred’, and while admiring what he had done in banking, the Belgian thought that he sounded rather abrasive. In the event, Goodwin and Lippens got on extremely well. Two days after the RBS board meeting, on 30 March, they met in Brussels for lunch at the offices of Fortis and Goodwin did what he could do when he wanted to clinch a deal. He turned on the charm. It helped that Lippens had a long-standing animosity to Groenink, on the grounds that he felt he had been misled in the past on various proposed deals. In contrast, Lippens was impressed with the RBS chief executive and agreed to proceed. The Belgians wanted the domestic Dutch retail banking business of ABN Amro, the Spanish would take Brazil and Italy and the Scots would get LaSalle in the United States and the investment banking operations.
A summit was arranged in great secrecy. On 12 April the RBS, Santander and Fortis private jets touched down in Geneva, and Goodwin, Botín, Lippens and their teams took over an entire floor of the city’s Four Seasons Hotel. Greenburgh and Orcel facilitated the meetings, and worked at smoothing the way in an atmosphere that was, initially at least, tense. Goodwin was accompanied again by Whittaker and Iain Allan, although it was Goodwin and Whittaker who went into the meetings, with Allan left outside. Goodwin knew that Allan had doubts about buying all of ABN Amro. He argued that LaSalle was worth getting because it would fit with Citizens. And Global Transaction Services was worth securing. But for the first time on a major acquisition Allan was sidelined. Whittaker, who had no experience of such deals, now found himself at the chief executive’s side. He was made integral to the process. By 8 p.m. the three banks had the outline of an agreement and it was time for a glass of champagne, before everyone headed for the airport and their private jets waiting on the tarmac. There still remained much to resolve, such as how exactly they would pay for the takeover. Would it be paid mainly in cash, or with shares? And how would Groenink and John Varley respond? Still, the bid was on.
An amazing ascent was being completed. Ten years earlier Goodwin had merely been running the tiny Clydesdale Bank, and a couple of years before that he was not even a banker. Now this accountant was the emerging kingpin of European banking. There had long been talk that there would be enormous cross-border takeovers similar to the consolidation of banks that had taken place within countries, leading to a smaller number of dominant big banks and the creation of a European rather than a purely national banking industry.6 And here was RBS playing a leading role in making it happen. Botín and Lippens agreed that Goodwin would be chairman of the consortium. In recognition of Goodwin’s feted skill at handling integrations, all of ABN Amro would go onto RBS’s books before the constituent parts were then dispensed to the Royal Bank, Santander and Fortis.
As well as the concerns of Iain Allan, when the deal was discussed in April there was some nervousness in the RBS management team, with the senior executives gossiping and whispering to each other out of earshot of Goodwin. Cameron, noted several of his closest colleagues, did not seem wildly enthusiastic, although the expansion of the investment bank was supposedly part of the rationale for the takeover. Brian Crowe, the chief executive of GBM, was privately wary: ‘Brian looked despairing and he was leery of ABN Amro,’ says a colleague. Others say he hid it well. Alan Dickinson, running the UK bank, did not like the idea and Gordon Pell, chairing the retail bank, grimaced when the subject of ABN Amro was mentioned. But no one made a stand in a meeting or confronted the chief executive. No one resigned.
The board asked questions, although they tended to be about logistical practicalities rather than the wisdom of embarking on the voyage in the first place. In only a few months, almost without its members realising, the board had been swept along from a position in which RBS was supposedly pursuing “organic growth” and not in the market for any more major takeovers to one in which it was in a race with Barclays for a slice of one of the biggest takeovers in European corporate history. In part it was because Goodwin handled the board skilfully by endeavouring not to look too keen and progressing calmly until the assumption was that they would do it. There are many to blame for the way they became caught up in the moment, although one of McKillop’s colleagues thinks this was the second chance the chairman missed to stop Goodwin. ‘When ABN Amro came up Tom’s response to Fred should have been thank you but no, forget it sunshine, start planning your next career move.’ McKillop was under no such pressure from his colleagues at the time. Sutherland wanted the next CEO to be someone more versed in running an institution with a large investment banking, although moving Goodwin along wasn’t felt to be an urgent necessity. There were other potential prizes that might flow from ABN Amro some of them felt. It was not a reason to do the deal, says a member of the board, but it would facilitate an eventual shake-up of the management in GBM: ‘The creation of a bigger investment bank after we got ABN Amro would allow us to get rid of Johnny [Cameron] and get in someone with more experience of running a big investment bank.’
The RBS board was becoming steadily more enthusiastic about ABN Amro. The full board and the smaller chairman’s committee discussed the deal in eighteen meetings and at no point did anyone oppose it. Sutherland was very much in favour, as was Bob Scott, the senior non-executive. ‘The board looked to Peter Sutherland for a sanity check,’ says an investment banker. ‘And Goldman Sachs’ (whose international arm Sutherland chaired) ‘had no skin in the game.’ Goldman was not advising any of the parties in the consortium or the rival bid. Joe MacHale, also a strong-minded character with considerable experience of investment banking, thought that the biggest prize was getting the global transaction service, which would give RBS global heft. Steve Robson had concerns about the risks but these did not cohere into anything like a consistent critique of the bid. The former senior civil servant had a mandarin’s gift for asking arch questions. ‘Steve was always the one with snippy points to make, trying to trip up Fred in small ways,’ says another board member. It just never became an all-out assault on the idea of the deal, even though he was deeply troubled by it privately and did not trust Goodwin. ‘It is tragic. It is obvious Steve should have resigned then,’ says a friend. But he didn’t.
There were fresh obstacles. The consortium’s original plan – toasted with champagne in the Four Seasons Hotel in Geneva back on 12 April – had unravelled. Formally notified of the Goodwin-led consortium’s intention to bid, Groenink had agreed to sell LaSalle, the supposed prize that RBS wanted, to Bank of America. It was a move designed to make Goodwin desist, give in and let Barclays and Groenink do their deal. Goodwin was furious on being told the news. Further inflaming his anger, he discovered that John Cryan, a senior investment banker at UBS who had worked on deals with Goodwin in the past, had helped facilitate the LaSalle sale for Groenink. By phone Goodwin gave Cryan both barrels. Cryan’s friends say he told Goodwin he thought that RBS should not be buying the other parts of ABN Amro, which seemed to be full of all sorts of toxic material, bad loans and exotic investment banking products on which the UBS team had struggled to put an accurate va
lue. Goodwin would not hear it, and brimming with confidence he told Cryan not to be such a ‘bean-counter’. The accountant from Paisley was upbraiding the career investment banker for being a ‘bean-counter’.
Perhaps the due diligence process would give RBS a clear picture. Companies examine the books of the firm they are buying to satisfy themselves and their shareholders that it is what it appears. This time only limited checks could be made, because the consortium’s bid was hostile. Barclays and John Varley – aiming for an agreed merger – had much better access to ABN Amro’s books and staff. This so reassured Goodwin that he said ‘due diligence light’ would be sufficient for the consortium. If Barclays had done a thorough run-through and were pressing ahead then it must be fine, he told colleagues and analysts. The presumption was also that the Dutch regulator which oversaw ABN Amro had a decent reputation and had not expressed serious concerns about the condition of the bank. In the event, RBS’s due diligence was more extensive than he made it sound and than was later claimed. Goodwin sent almost a hundred people to Amsterdam under the command of Mark Fisher, where the team established twelve ‘workstreams’ and undertook analysis running to more than a hundred pages as to how the integration would work. The concentration, as in so many of Goodwin’s previous takeovers, was on cost savings and ‘synergies’ of applying the RBS model, as on every takeover since the days of Project Columbus and then NatWest. There was an examination and assessment of ABN Amro’s balance sheet, although it concluded that the bank’s clients were of ‘high quality’ and its assumptions about potential losses ‘appear adequate’.
They had found ‘no showstoppers’, Goodwin reported back to the chairman’s committee, an off-shoot of the board, on 3 May. The momentum was definitely building. Scotland’s new First Minister, Alex Salmond, even offered his support. Just days after taking office in May 2007, he wrote privately to Goodwin.7 ‘Dear Fred, I wanted you to know that I am watching events on the ABN front closely. It is in Scottish interests for RBS to be successful, and I would like to offer any assistance my office can provide. Good luck with the bid.’ Salmond was an ex-RBS staffer and a good friend of George Mathewson, who advised him on the Scottish economy. Coincidentally, the hedge fund that Mathewson chaired – Tosca – had been a prime mover in calling for the sale of ABN Amro. With a flourish, Salmond signed his letter: ‘Yours for Scotland, Alex.’
