ABN Amro: Prestige role – how the Dutch privatize banks

By:
Dominic O’Neill
Published on:

A key player in ABN Amro’s IPO last year was the entity set up to hold and sell bailed-out Dutch banks and insurers, Netherlands Financial Investments (NLFI).

Gerrit Zalm-594
ABN Amro's executive chairman Gerrit Zalm

The government established NLFI in 2011 and modelled it along the lines of its British equivalent, UKFI. Its holdings include ABN Amro, SNS (a lender nationalized in 2013) and insurer ASR, previously part of Fortis. 

The first aim is to prevent meddling in the subsidiary institutions’ business decisions – which executives at ABN Amro say NLFI does well, including when it comes to international strategy. The day-to-day job is advising the government on sales and executing those transactions. 

NLFI attracted a long line of top investment banks for ABN Amro’s IPO and at a fee one banker says was "symbolic". Deutsche Bank and Morgan Stanley joined ABN Amro as global coordinators, with eight other local and international joint bookrunners and co-lead managers. 

The banks’ total fee for the €3.8 billion deal, shared between all 11, was €4.5 million, plus expenses up to a maximum of €50,000 for each bank. Rothschild, in addition, advised NLFI on the nature, timing and process for the sale, including which bookrunners to choose. 

The prestige of acting on the biggest European bank IPO since 2008 – the privatization of a globally known brand – was enough to bring in four US investment banks. Only one US bank, Citi, was named in February to act on ASR’s IPO, however. One of the absent Americans said the level of fees made involvement in the deal unattractive.

Doubts

Whether or not NLFI was able to properly steer the government on the timing of the ABN Amro sale has been questioned by some. Doubts over political interference are not helped by NLFI’s physical location just metres away from the finance ministry in The Hague. 

NLFI’s initial advice was that the most logical option to sell the bank was an IPO, given the lack of interest from strategic buyers and the complexity and rigidity of cooperative ownership. Economic conditions were such that the state should wait at least a year before the flotation, it said. 

However, it was over a year and a half before NLFI published its next advice saying that the bank and markets were ready. The deal closed more than two years after the August 2013 advice. Part of the delay, it seems, was the result of a €100,000 pay increase for members of the bank’s board (who cannot receive bonuses) which was unveiled in the annual report in March. After it caused a row in parliament, the board forewent the pay increase.

According to one of the bookrunners, had it not been for the row over pay, the bank might have listed earlier in the year – when markets were more bullish – and perhaps achieved a price around 10% higher. The row seems, at least, to have underlined to the bank how careful it has to be with paying its bankers. 

"Remuneration is an extremely sensitive issue; it is already so in general for the top earners, but it’s even more sensitive in the financial industry, and it’s super-sensitive when there’s a state-owned element in the financial industry," says ABN Amro's executive chairman Gerrit Zalm, reaching for a discreet e-cigarette. "That’s what we underestimated."