Barclays Plc and Abn Amro Case Study

Table of Content

Barclays, a major international bank, operates in over 50 countries and employs 135,000 individuals. It holds significant influence through partnerships with governments on infrastructure projects and providing banking services to customers in emerging markets. The bank consists of two main divisions: Global Retail and Commercial Banking (GRCB) and Investment Banking and Investment Management (IBIM). Its main goal is to sustain growth by diversifying profits and staying relevant to customers.

The main goal of this case study is to analyze the bid and planned acquisition of ABN AMRO and the early acquisition of Banco Zaragozano by Barclays. It will compare the performance of these two banks, taking into account their strategic and economic goals. The emphasis will be on the merger acquisition and the strategies employed to achieve improvements and reflect the results between 2002 and 2006.

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This text examines Barclays’ strategy from 2002 to 2006 and its performance prior to the ABN bid. It focuses on global industry drivers and how they influenced the group’s strategic decisions. To fully comprehend these changes, it is crucial to consider Barclays PLC’s historical context. The bank was established in 1690 by John Freame and Thomas Gould but adopted its current name in 1736 when James Barclay became a partner. Currently, Barclays is the third largest bank in the United Kingdom and operates extensively in retail banking, investment banking, and investment management. Its operations span across 60 countries worldwide, with notable interests in Europe, the United States, Asia, and Africa.

Barclays, a prominent global bank with a large market capitalization (Barclays PLC, 2004), has a main focus on retail and investment banking. However, the introduction of the Euro and increased globalization within European Union member states is having an impact on its investment banking sector. Consequently, Barclays serves both the UK market and multinational companies operating under different market models.

The bank aims to provide a wide range of services worldwide, creating multiple opportunities for cross-selling. Its strategy is focused on achieving sustainable growth by diversifying the business and expanding into rapidly growing markets and segments. The objective is to become one of the leading global financial services providers, assisting customers in achieving their goals. Furthermore, the bank’s strategy is based on the principles of earning, investing, and expanding.

Aligning business drivers with strategic options, Barclays considered direct investment or outsourcing to a ‘partner’ bank. This evaluation was done in relation to the bank’s key business drivers, which included improving their trade processing operating model, reducing trade business costs (including people, infrastructure, and services), enhancing trade service capabilities, and establishing a non-competing, long-term ‘partnership’.

After considering all options, including a Joint Venture partnership, Barclays made the decision to outsource the processing aspect of its trade services offering to ABN AMRO. The focus now is on providing enhanced client service. Presently, the banking industry has witnessed a proliferation of consolidation, resulting in the emergence of international banking conglomerates. This trend has made European banks appear relatively small in comparison.

Barclays operates in a liberal market economy, which means it competes with equity financing for corporations. However, this is not a strength in terms of its overall performance. The group’s performance from 2002-2006 shows that Barclays’ strategy of acquiring other banking concerns, such as ABN Amro and Banco Zaragozano, allows it to expand its retail and other banking services internationally. This is evident in the bank’s presence in 60 countries.

Barclays benefits from the opportunity to offer its lucrative investment banking services and cater to multinational companies that rely on its diverse range of financial services. In comparison, ABN AMRO bank operates in 76 countries and territories, using its global network to deliver universal banking solutions. These services include commercial and investment banking products for national and international corporate clients, as well as personal and private banking for individuals.

In 2007, Barclays announced their intention to acquire ABN AMRO bank to expand their distribution base. The acquisition was valued at €67 billion. In October, the RFS consortium, led by Royal Bank of Scotland, declared victory in their bid for control of ABN AMRO. The RFS group’s offer of €70bn was accepted by shareholders representing 86 percent of the Dutch bank’s shares. Barclays is recognized for consistently delivering steady profitability, with a 20% increase in profit before taxes in 2003 and 2004. They also have one of the lowest cost to income ratios among UK banks.

The previous information suggests that Barclays is well managed. Barclays’ focus on internal administrative consolidation and the acquisition of banking concerns shows its understanding of the need to maintain growth in revenues, return on equity, dividends, and profits in order to maintain a high market capitalization. This high market capitalization makes it relatively unattractive as a takeover target due to the need for a high premium to acquire it. The success of Barclays’ retail banking arm is clearly evident through the achievements of its Barclaycard division, which has set industry standards in terms of customer utility innovations. Furthermore, Barclays’ presence in 60 countries enhances the usefulness of this card, providing business and retail customers with global access to their financial accounts (Barclays PLC, 2004).

Due to the economic strength of global industry market-based economies fully recovering from the global recession events of 2002, there is a diverse range of operations. Barclays banking acquisition strategy is a direct result of this, aligning with the trend of consolidation initiated by U.S.-based banks. Indeed, ABN AMRO bank’s performance in 2006 raised concerns about its future.

Operating expenses escalated at a higher pace compared to operating revenue, leading to a further decline in the efficiency ratio to 69.9%. Non-performing loans witnessed a significant year-on-year increase of 192%. The profitability of the company was only improved due to ongoing asset sales. The period from 2002 to 2006 witnessed continued progress as the corrective measures required for improvement were better understood and implemented. Barclays maintained a consistent and steady performance throughout this period, as the bank remained focused on the competencies that contributed to its satisfactory historical performance.

Compare and contrast the intended acquisition of ABN with the earlier acquisition of Banco Zaragozano. Pay attention to the merger rationale, motives, and likely synergy gains resulting from the integration of ABN. Understanding the drivers of the bidding war before the intended acquisition of ABN AMRO bank and Barclays’ acquisition of Banco Zaragozano in 2003 is crucial to comprehend the reasons behind mergers and acquisitions (M&A) and their potential gains. However, let’s begin by clarifying some definitions.

Mergers and acquisitions (M) involve consolidating strategies that result in a change of control by transferring ownership. A merger happens when one company or business acquires the assets of another, combining them into a single corporation. This process creates a new corporate structure while preserving its original identity.

An acquisition is distinct from a merger because it entails the dissolution of multiple problems and the establishment of a brand-new company. The main idea behind mergers and acquisitions is synergy, where combining two companies generates greater value than their individual parts combined. These transactions are motivated by strategic and economic factors. Barclays’ strategic objective in acquiring ABN AMRO bank was to seize an important opportunity that would drive accelerated growth for the benefit of shareholders as a whole.

Furthermore, the planned investment would be executed at a cost slightly lower than the current market trading price. The merger with Barclays aimed to bolster financial performance and gain strategic advantages, elevating its position in the global business landscape. The suggested merger with ABN AMRO was a distinct chance to establish dominance in global retail and commercial banking, serving approximately 47 million customers, and surpassing the standalone entities in terms of financial returns for their shareholders.

This merger brings together the strengths and values of both businesses, providing confidence in delivery. ABN AMRO bank and Barclays have determined the synergies and management structure in detail. The combined entity offers shareholders a diversified portfolio in terms of geography and business. A quarter of the enlarged profit base is from exposure to high-growth developing markets.

Business segments like investment banking and investment management, known for their strong growth potential due to demographic trends, account for approximately half of Global Retail and Commercial Banking’s profits. The merger would result in the formation of the fourth largest retail and commercial bank globally in terms of market share. Moreover, in a scenario where the requirements and purchasing behaviors of retail and commercial customers are becoming more alike, this consolidation would bring about economies of scale.

In addition, the merger between the two banks would bring several benefits. These include complementary networks, a strong presence in attractive European markets, significantly enhanced positions in high-growth developing markets, a much larger distribution network, and the opportunity to achieve considerable economies of scale. The main reason behind Royal Bank of Scotland (RBS) surpassing Barclays’ offer for ABN Amro was the higher cash element of 79% per ABN AMRO share, with the remaining in RBS shares. The bid, which values ABN at E71bn (? 8bn), outperforms Barclays’ all-share offer, which is worth E64.5bn.

The ABN AMRO bank shareholders will receive better value through this deal, as the Royal Bank of Scotland (RBS) offers a higher share price expectation. Additionally, RBS predicts cost savings of E4.23bn by the end of 2010, surpassing Barclays’ estimated savings of around E2.8bn. These factors contribute to RBS’ successful bid over Barclays, highlighting the different strategic visions of the two banks.

Barclays is aiming to create a large universal bank but its potential for cross-border synergies may be limited. Conversely, the RBS consortium intends to achieve “in-market synergies” by dismantling ABN AMRO. Meanwhile, Barclays successfully finalized its purchase of Banco Zaragozano in 2003, investing ? 788 million, which aligned with the bank’s strategy to expand in Europe. Having been active in the Spanish market for 25 years, Barclays is currently the most lucrative foreign-owned bank in Spain.

With the acquisition of Banco Zaragozano, Barclays has become the sixth largest private bank in Spain, significantly expanding its customer base and branch network. This move is part of Barclays’ strategy to become one of the top five banks globally, which includes considering acquisitions. Additionally, Barclays acknowledges that having a physical retail and commercial banking presence is crucial for the growth of its investment banking sector.

Acquiring Banco Zaragozano demonstrates that a robust retail presence can generate fresh business prospects for global companies in fields such as investment banking and credit cards. The success of a transaction also depends on the evaluation period employed. Usually, in the near term, when mergers are disclosed, the stock price of the targeted company typically increases while the acquiring company’s stock price stays relatively steady. This is generally because there is an expectation that a successful offer will be made, providing a premium above the present market value of the targeted company’s stock.

Typically, the prices of acquirers do not fluctuate significantly as the market responds with caution, which is contingent upon transaction specifics. It is vital to identify the fundamental factors that play a role in sustaining a competitive edge within the worldwide financial services sector. These factors impact the firm’s competencies, structure, and ethical/corporate governance. Critical success factors (CSFs) have been extensively utilized to emphasize a limited set of key aspects that organizations should prioritize for attaining success.

As a definition, Critical success factors (CSFs) are the few areas that, if successful, will ensure competitive performance for individuals, departments, or organizations (Rockart and Bullen, 1981). Identifying CSFs is crucial as it helps firms prioritize their efforts in developing the necessary capabilities to meet these factors, or determine if they have the ability to fulfill the requirements needed for CSF achievement.

With its extensive banking experience, Barclays has thrived and gained recognition as a dependable establishment. Its expansion to 50 countries is a testament to this success. As a universal bank, Barclays caters to the financial needs of more than 42 million customers globally by providing loans, investments, and protection services. A crucial element contributing to Barclays’ triumph is its dedication to understanding and fulfilling the requirements of its customers and clients, aiding them in reaching their objectives.

Barclays has effectively focused on and pinpointed emerging markets like India, parts of Asia, and Africa (particularly South Africa). In these markets, they have increased their retail network and the accessibility of cash machines. Despite being a worldwide company that offers a wide range of services from basic bank accounts to financing Government projects, Barclays has consistently given priority to satisfying the requirements of individual clients. It is challenging to establish competitive advantages and even more challenging to maintain them. Community banks usually cannot attain cost advantages, particularly when directly competing with larger institutions that handle high volumes.

Despite the challenges, differentiation remains the main strategy for gaining a competitive advantage in the banking industry. However, technology is becoming increasingly influential in this sector. Currently, most banks utilize similar systems to develop and deliver their products and services, leading to standardized banking practices that contradict the goal of differentiation. Therefore, relying solely on technology for long-term competitiveness is almost impractical, despite its potential temporary benefits.

Technology has diminished the advantages that community banks used to have. Personalized service, which was previously only available from community banks, can now be provided by even the largest institutions thanks to CRM. Sustainable competitive advantages are achieved by utilizing an organization’s unique combination of qualities, such as brand equity, reputation, geographic presence, and specialized knowledge. Barclays is a prime example of a bank that has attained competitive advantages through its specialized knowledge.

Corporate governance is crucial for both individual companies and the global financial services industry. It is especially important for the well-being of shareholders and creditors. In addition to benefiting individual corporations, sound corporate governance is also necessary for maintaining a strong financial system and a thriving economy. This is why governments have been closely monitoring recent instances of corporate governance failures.

Banking supervisors are increasingly focusing on the importance of corporate governance in promoting financial stability. Corporate governance is a crucial factor in determining the health of the financial system and its resilience to economic shocks. The soundness of individual components, such as banks, non-bank financial institutions, and payment systems, greatly influences the overall health of the financial system.

In order to ensure soundness, a firm’s capacity to identify, measure, monitor, and control risks is crucial. Barclays has implemented effective corporate governance policies and practices with the aim of prioritizing shareholder responsibilities and creating long-term shareholder value. They also strive to maintain ethical, legal, and transparent behavior. Organizational structure is vital for firms as it serves as a means to efficiently achieve their objectives and facilitates the accomplishment of organizational goals.

Identifying the key activities and coordination of organizational processes is aided by understanding the firm’s primary organizational structure. This structure includes major elements, components, or differentiated units. Other methods of organization include reward systems, coordination terms, planning procedures, alliances, information, and budgetary systems. A common structure used by firms that have expanded their products or services to new geographical areas is the geographical structure.

Barclays decided to expand its operations overseas to areas where they often face variations that require different strategies in producing, offering, or selling services or products. This geographic flexibility allows the bank to be responsive to local market conditions, as demonstrated by its planned acquisition of ABN AMRO and its early acquisition of Banco Zaragozano. Ultimately, Barclays aimed to establish an international presence after achieving success in the United Kingdom, further solidifying its position in the banking industry.

Barclays in the United Kingdom has successfully acquired several small banks, including Banco Zaragozano, leading to significant market expansion and profits. This continuous growth has enabled Barclays to reach a mature stage within the UK, representing its peak of development. Additionally, the bank has maintained consistent and steady performance from 2002 to 2006 by leveraging the competencies that have contributed to its satisfactory historical achievements.


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