ABN-Barclays could create new capital markets titan

If a deal goes ahead, it would create Europe’s second largest bank by market capitalisation and probably put Barclays-ABN in the top global league — along with Citigroup, JP Morgan Chase, HSBC and Bank of America — of banks that seem too big for any rival to stop.

The merger would transform what are still slender players on the global stage, with strongly defined regional strengths and weaknesses, into a global gorilla with nearly Eu2tr of assets and fingers in almost every pie of global corporate and investment banking.

This potential transformation was underlined by the revelation that Barclays had agreed in principle to move the merged headquarters to Amsterdam, although the listing would still be in London. The Netherlands would likely be the bank’s lead regulator.

Furthermore, while Barclays would choose the chief executive, the chairman would be nominated by ABN.

Barclays and ABN have complementary strengths in many areas of investment banking. Most notably, ABN has a cash equities franchise and a mergers and acquisitions advisory business — the two big pieces of the classical model that Barclays lacks.

Will Barclays Capital’s chief executive Bob Diamond be pleased to add those strings to his bow — or want to shed business lines that Barcap has long avoided?

Regionally, the two banks dovetail well, too. For instance, while Barclays has recently built a creditable investment banking franchise in the US under Tom Kalaris and Grant Kvalheim, it lacks a retail presence.

Conversely, ABN has LaSalle Bank, a Chicago-based commercial bank, but has failed to make much impact on the New York capital markets.

Europe

In European fixed income, both ABN and Barclays are leading players, although Barclays’ recent rise up the league tables has left ABN behind, except in certain areas like covered bonds. There would be considerable staffing overlap here if a merger went through.

Both fixed income divisions in London are staffed by some of the higher profile people in the debt markets.

Barclays’ syndicate desk is led by Geert Vinken as global head, while Paul White runs the ABN Amro desk.

BarCap’s team includes Sean Taor as head of frequent borrower syndicate, Mark Geller, who looks after financial institutions, Wayne Hiley in charge of corporate borrowers and Richard Mann, who runs ABS syndicate.

At ABN the team is larger. Jeremy Walsh is responsible for frequent borrowers and covered bonds, Harman Dhami bank capital, Philippe Bradshaw corporates, Paul Johnson sterling and David Fry local markets. Fry was hired from TD Securities in March last year to build ABN’s franchise in niche currencies and has made good progress so far. Barclays has yet to make a push in this field.

In debt capital markets, John Winter runs Barclays’ operation and, now that Niall Cameron has left, Mike Nawas runs fixed income capital markets for ABN Amro.

At Barclays, Kentaro Kiso runs frequent borrower DCM, Richard Boath the financial institutions group (FIG) and Chris van Niekerk corporates.

ABN has Clinton Orr and Jamie Stirling jointly heading frequent borrowers, Steve Curry European FIG and Stuart Bell corporate borrowers. Justin May heads FIG and corporate DCM globally.

ABN and Barclays are the two top banks in covered bonds, with ABN’s effort run by Mauricio Noé and Barclays’ by Ted Lord.

Covered bond rivals are delighted that there may be one less competitor in the market and, given the frenzy to hire decent covered bond staff, whoever loses out in the merger is unlikely to be unemployed for long.

In the league tables, Barclays topped the overall international bond bookrunner table last year, while ABN climbed from 12th to 10th. So far this year, Barclays is at number three while ABN is eighth.

In subordinated financial institution capital, Barclays is ninth in this year’s league table, while ABN does not figure in the top 10.

In all international FRNs, Barclays is at number three, while ABN is at six.

US

In the US, Barclays’ acquisition of ABN would give it a foothold in retail banking, while ABN would marry into a bank that has developed a strong and respected US bond underwriting business.

Grant Kvalheim, who has overall charge of it, became known as a strong DCM leader at Merrill Lynch in the 1990s. He then moved to Deutsche Bank to build up its US bond business, and was then poached by Barclays Capital.

At Barclays, Kvalheim has concentrated on organic growth, building bond underwriting in areas where the bank was strong on the lending side, like utilities.

Although Barclays is a small player by Wall Street standards, its bond business has blossomed in every sector it has turned its hand to, so that it is now considered a fierce rival for utility bond business, for example.

Latin America

Barclays and ABN’s Latin American debt capital markets businesses are also very complementary.

While Barclays tends to concentrate on sovereign bond and liability management business, ABN focuses on bringing Latin American corporate borrowers to the international markets, including the often high revenue-earning Latin high yield deals.

Both banks have Latin American DCM teams headed by well known and experienced bankers – Carlos Mauleon at Barclays and Pablo Venturino at ABN.

Within Latin America, where investment banks expect the bulk of their future growth in Latin American business to come from, Barclays will benefit enormously from ABN’s local presence.

ABN is considered among the elite group of "locals" in the fiercely competitive Brazilian banking market.

Its Latin American loan team is also renowed for its highly innovative loan structures and acquisition financings. ABN and Citigroup are considered a step ahead of the rest when it comes to providing market-leading new structures for loan acquisition financing.

ABN was one of the four bookrunners on the giant $18bn bridge loan for Brazilian steel company Companhia Vale do Rio Doce last year, to finance its takeover of Canada’s Inco. ABN was also a leader in reopening the international loan market for Argentine companies.

Eastern Europe, Middle east

In the EMEA emerging markets, the two banks also fit neatly in many respects.

Powered by its appetite for lending, ABN Amro enjoys strong corporate relationships and a respectable presence in the primary bond markets for eastern Europe and the CIS.

Barclays Capital, meanwhile, is growing in Russia and is indisputably dominant in Middle Eastern equity-linked sukuk issuance.

ABN Amro’s EMEA emerging market origination team is led by Mike Elliff, while Barclays Capital has Sergei Stankovsky heading its investment banking division for Russia.

At ABN Amro, George Niedringhaus leads the emerging market bond syndicate desk. But the departure of Marco Baldini to Merrill Lynch has left Barclays Capital without an emerging market debt syndicate specialist in London.

According to Dealogic, ABN Amro is seventh in the league tables for CIS bond issuance in 2007. Barclays Capital does not feature in the top 10.

A banker at one of the houses said yesterday: "The deal could be really beneficial from an EM standpoint. A lot of people are concerned about overlap, but from an emerging market standpoint, we are more complementary."

However, bankers away from the merging pair pointed to the size of Barclays’ and ABN’s combined Russian DCM teams, which would swell to more than 10 people and dwarf the origination capabilities of many of their rivals.

Syndicated loans

The one major capital markets field where both Barclays and ABN are first rank players is syndicated loans.

Both banks have thriving loans desks in London. Barclays is particularly strong in western European and leveraged finance markets, while ABN is a market leader in the emerging sectors, with a particularly healthy franchise in Russia.

"This is being called a merger of equals, but that is clearly not the case — Barclays will undoubtedly by the dominant partner in any tie-up," a loans banker at ABN Amro told EuroWeek. "I cannot see the Barclays guys going, so I would expect the axe to fall squarely on ABN staff."

Martyn Powell heads structured lending at ABN Amro, with Mark Vincent running the loans syndicate. At Barclays Capital, Tim Ritchie is head of loans and Vijay Rajguru head of syndicate.

"The combined team will number about 26 bankers on the loans syndicate desk alone," said the banker at ABN. "Clearly, that will be cut very early, with many of us looking for something new. "

EuroWeek. "I cannot see the Barclays guys going, so I would expect the axe to fall squarely on ABN staff."

Martyn Powell heads structured lending at ABN Amro, with Mark Vincent running the loans syndicate. At Barclays Capital, Tim Ritchie is head of loans and Vijay Rajguru head of syndicate.

"The combined team will number about 26 bankers on the loans syndicate desk alone," said the banker at ABN. "Clearly, that will be cut very early, with many of us looking for something new. "

Structured finance

In asset backed securities the picture is mixed. Barclays Capital’s team, led by Lynn Gilbert with Allen Appen running financial institutions securitisation, is among the top three houses in Europe and won Structured Finance International’s award for Best Investment Bank for Securitisation last year.

The team’s main strengths are in financial asset and corporate securitisation in the UK — where it has structured and underwritten several of the major mortgage and credit card master trusts — as well as UK and European real estate securitisation, and Australian mortgages.

ABN Amro’s strengths naturally lie in northern continental Europe, particularly consumer ABS in the Netherlands, headed by Udo van der Linden, and Germany, where it has an active real estate conduit CMBS programme run by Doug Tiesi.

ABN is one of the leading banks in Portuguese securitisation and has a strong presence in the Australian RMBS market. It is also present in the UK mortgage market but is nowhere near as competitive as Barclays.

While there is relatively little overlap on the origination side, a combined ABS syndicate team would likely be overstaffed.

Structured Finance International’s award for Best Investment Bank for Securitisation last year.

The team’s main strengths are in financial asset and corporate securitisation in the UK — where it has structured and underwritten several of the major mortgage and credit card master trusts — as well as UK and European real estate securitisation, and Australian mortgages.

ABN Amro’s strengths naturally lie in northern continental Europe, particularly consumer ABS in the Netherlands, headed by Udo van der Linden, and Germany, where it has an active real estate conduit CMBS programme run by Doug Tiesi.

ABN is one of the leading banks in Portuguese securitisation and has a strong presence in the Australian RMBS market. It is also present in the UK mortgage market but is nowhere near as competitive as Barclays.

While there is relatively little overlap on the origination side, a combined ABS syndicate team would likely be overstaffed.

Structured credit

In CDOs, the merger would work well. ABN Amro’s synthetic credit derivatives team is among the most innovative in the market.

In August last year it launched the first constant proportion debt obligation (CPDO), a deal called Surf. But ABN Amro is noticeably absent from the cash CLO market.

Barclays, on the other hand, is much better represented in the cash market, especially in commercial loan obligations. Barclays is arranging Caja Madrid’s first CLO, called Neptuno CLO I.

Further, the merged bank’s larger balance sheet would allow the new entity to compete better with rivals such as RBS and the universal banks in the cash market.

What’s more, Barclays is weaker in synthetic products. So, the combined structured credit team would be in a much better position going forward.

MTNs

Barclays wins the MTN battle comprehensively, coming at or near the top of league tables for both plain vanilla and structured trades.

ABN Amro has got off to a slow start this year, having placed only a dozen structured notes for external clients, almost all in very simple (and low-margin) fixed rate callable format.

BarCap, by contrast, has placed more than 50 structures for third party issuers, offering funding opportunities across interest rate, equity, inflation and currency linked formats.

The different focus and priority each bank has on the MTN product is reflected most strongly in Hong Kong dollars, where despite both having a significant presence in the territory, they achieve vastly different levels of business. Barclays ranks sixth in the currency according to Dealogic data, while ABN Amro has yet to place an MTN for a third party borrower this year.

However, ABN Amro’s US franchise, via its LaSalle operation, would make a good fit with Barclays’ ambitions to match the likes of Goldman Sachs, Morgan Stanley and JP Morgan in the fast-growing US market for structured notes.

BarCap, like other European houses, has been trying to build a presence in the US, where structured notes have gained in popularity among investors over the last year.

The added distribution capability of LaSalle would complement Barclays’ derivatives and structuring business and allow it take on established Wall Street houses, and provide additional funding opportunities to its European issuer clients.

Barclays’ MTN business is still fronted by Kentaro Kiso, though for the last year he has had dual responsibility for frequent borrower origination, leaving Oliver Johnson in day-to-day charge of the desk.

The team also includes Florence Tresarrieu and Toby Croasdell in London, as well as representation in Tokyo.

Anthony Everill, another MTN market veteran, leads ABN Amro’s MTN team of Jeremy Chang and Natalie Bowbrick.

Chris Dammers and EuroWeek reporters