Rival banks turn up heat on ABN deal

Plans for an £89bn (€131bn) merger of British bank Barclays and ABN Amro came under more pressure today after the Dutch bank’s shares surged on hopes of a rival offer.

The prospect of a potential counter-bid from the trio of Royal Bank of Scotland, Belgium-based Fortis and Spain’s Santander lifted ABN’s shares by more than 6% to €35.84.

This is above the €35 a share offer most analysts think Barclays can afford.

The two banks are already racing to seal an agreement before Wednesday, when their period of exclusive talks over a deal to create the world’s fifth largest bank ends.

Shareholders of ABN – including activist hedge fund The Childrens Investment Fund – are likely to press the bank’s board to open its books to any rival bidder.

Charles Stanley analyst Nic Clarke said: “This approach turns up the pressure on the negotiations between ABN and Barclays.”

Mr Clarke added that the two banks had to walk a “difficult tightrope” between a low Barclays offer which would spark demands for talks with the rivals, and too high a bid, which would hit Barclays’ own share price.

Analysts think that the trio could afford to pay more than €40 a share for the Amsterdam bank because the increased geographical overlap of the rival team would offer more scope for cost savings.

Barclays has already offered concessions to the Dutch bank, including moving the combined company’s headquarters to Amsterdam.

The Dutch bank was also boosted today after reporting operating profits of €1.23bn for the first three months of 2007, up more than 25% on last year.

Chairman Rijkman Groenink said the company’s focus on cost savings and growth had led to a “significantly improved” performance.

The Dutch bank is due to respond to the rival consortium by tomorrow evening, although a decision to open the books could also spark interest from other banking groups such as Spain’s BBVA for parts of the business.

The trio, advised by investment bank Merrill Lynch, is said to be planning to split ABN into equal thirds.

It is understood that RBS would take the Dutch bank’s US operation La Salle, and its Asian businesses, while Santander would claim the business’s Italian and Brazilian divisions. Fortis would take ABN’s retail banking operations in Holland and Belgium.

If the merger is concluded, it would see Barclays become the UK’s second biggest bank – overtaking Royal Bank of Scotland – and the fifth biggest banking group in the world behind Citigroup, Bank of America, HSBC and the Industrial and Commercial Bank of China.