“I always wanted to be a banker”
ABN Amro is an unusual institution. No other bank is successful in such a wide range of businesses: from auto leases in Brazil, to retail banking in the US, and Eurobond lead-management. It’s the biggest foreign bank in both the US and Japan. There’s hardly a banking field it’s not expanding in.
And all this has happened in a mere seven years – since the bank was formed by a merger of two Dutch banks in 1990. Yet ABN Amro has made no headline-grabbing mergers. Its investment banking network has been put together from a patchwork formed of a dozen small acquisitions. Most of these units retain their original names.
The bank also has a unique culture. Its board meets twice a week for three hours at a time and approves every major loan and senior appointment. The firm abhors stars, preferring to hire medium-level outsiders, rather than high-flyers. It’s also very Dutch. Where European rivals, such as Deutsche Morgan Grenfell and BZW, have imported American methods to develop investment banking, ABN Amro’s board still doesn’t have a single foreigner on it.
In five hours of interviews recently, ABN Amro chairman Jan Kalff spoke to Garry Evans about the challenge of knitting together ABN Amro’s disparate empire, and about the bank’s strong control culture that has helped it avoid the pitfalls others have fallen into. Extracts from their conversation follow.
This is a puzzling institution, very hard to understand. What are you aiming to become?
We’re a rather unusual bank. Journalists often ask me who we’d like to compare ourselves with. I can’t really name a bank that’s comparable. Ten years ago I would have said Barclays. But that’s no longer the case because Barclays greatly reduced its international commercial banking ambitions. We’ve always been a universal bank combining commercial banking, retail banking, corporate banking, private banking and investment banking.
In the last century, that was mainly in Holland and the Far East. After the second world war, it developed globally. Now the bank is active in 70 countries. We have one of the largest networks of any bank. In more than half of the 70 countries, we’re a universal bank. By contrast Citibank – a wonderful institution – is in about 100 countries, but it’s not a universal bank because they don’t really want to be an investment bank.
You seem to have number of excellent businesses – in Brazil, investment banking, Dutch retail banking – but without many connections between them. So do you look at your businesses as a portfolio?
I’m sorry you think that, because our policy is to connect these businesses. We call ourselves in our slogan and our advertisements “the network bank” for exactly that reason. We want to act in the market as an integrated bank. But that doesn’t mean that all the businesses we have in these 70 countries are the same. Brazil is a good example, where we have a somewhat unusual business. But even in Brazil we do have private banking, corporate banking and some retail banking, even though the best money is made in auto financing.
But your US banking operation, for example, centred on LaSalle National, is very much a standalone operation, isn’t it?
Only 65% of what we do in the us is LaSalle; 20% or so is European American Bank; and 15% is abn Amro. That 25% fits into the overall business of abn Amro network bank. The LaSalle and eab operations are more standalone, you are right. They’re 100% domestic banks. But the top segment of their corporate banking customers makes use of abn Amro’s network.
As recently as 1992, ABN Amro was only a very minor player in investment banking. When was the decision taken to make a push in investment banking?
We took the decision in our minds in 1990 at the time of the merger between abn and Amro, and then came to a more precise conclusion in 1992. The first major move was the acquisition of Hoare Govett in 1992. We don’t take decisions like that easily. There’s always a long debate before every major decision. That’s very typical of our bank: we take a long time to make up our minds. We have a consensus style of decision-taking.
Bear in mind that after the merger in 1990 there were many things to be done. We had to combine the two networks domestically and sort out where we wanted to go internationally. That all involved very lengthy discussions. abn people had to listen to Amro people, and vice versa. You need a bit of time to adapt to one another. It took us a year or two to reconstruct the organization. So we didn’t have time to think about investment banking to start with. First we had to cut costs: that was something significant we could achieve straight away by combining the two networks. We went down from 1,400 branches domestically to 1,000, reduced staff by 6,000.
Was it hard in the Netherlands to cut the number of staff so drastically?
We knew it would be but, yes, it was hard. It took four and a half years.
Didn’t you have trade union problems?
We wanted to avoid that, so we took time reducing the number. We wanted to do it only by natural attrition.
Nobody was actually fired?
There were many schemes to induce people to retire earlier, that sort of thing. But nobody was laid off. When we merge banks in the United States, we give our managers no more than 12 or 18 months to effect all the staff cuts. Here it took more than four years. We managed it very well: all those years the bank was never criticized in the newspapers for being too rough.
Those, understandably, were the things we concentrated on immediately after the merger. Should we have six or seven divisions? Who will do what? That took us a year or two. But, when that all went well and the results were improving, we sat down and decided where we wanted to go internationally. Commercial banking? That was already fairly strong because of the abn side. But we were weaker in investment banking.
Then came the opportunity to buy Hoare Govett. Bank of America had just acquired Security Pacific, which had a subsidiary called Hoare Govett in London. Security Pacific was in bad shape. It hadn’t had enough time, money or quality people to support Hoare Govett. So Hoare Govett was in bad shape, too. We were able to buy them at below book value – on the cheap, if you will.
I’m surprised you put so much emphasis on Hoare Govett. It was a tiny firm, with a weak business.
I put emphasis on it because, in the minds of our people, it was an important step in a new direction. We’d never really made an acquisition in investment banking before. It proved to the people in the bank that we wanted to become an international investment bank, not just a player in the Dutch market, where we were already dominant. It demonstrated that we wanted a presence in London, albeit through a small ailing entity like Hoare Govett. We bought them just in time. The name was still good – although everyone realized the firm wasn’t growing – and they had a number of good people. A year later and perhaps that would have been lost. We put in money, we put in good people.
Was it a clear-cut decision that you had to be a big international investment bank?
We had no doubt.
Because your clients were increasingly raising capital through the securities market rather than via bank loans?
That was the economic driving factor. On top of that we had a strong corporate customer base, thanks to our commercial banking operation, both in Holland and internationally. So we didn’t have to open doors from scratch; the doors were at least already ajar. The second reason is that we had investment banking capabilities, albeit only in Holland. So it was logical to try to build it up internationally.
The first step was to acquire Hoare Govett and other entities in Milan, Madrid, France and Scandinavia. Now we have a full network of investment banking units. Some of them still carry their original name, but the intention is to use just one name
How quickly?
It’s a matter of perhaps a year or two at most, maybe earlier.
Why can’t you do it now?
We could, but I don’t think it would be wise. We’ve acquired a very successful outfit in Scandinavia, Alfred Berg. It’s number one or two in each of the four Scandinavian countries.
A lot of people don’t even know you own it.
No, although on their stationery they say they’re part of the abn Amro group. But they still use their own name. They’ve now requested us for approval to change their name to abn Amro. That’s interesting.
Not ABN Amro Alfred Berg, just ABN Amro?
Maybe for a interim period we’ll call it abn Amro Alfred Berg, but that won’t be for long. If we’d changed the name immediately after we bought Alfred Berg two years ago, we would have run the risk of losing good people and customers. It was an well-established name: Alfred Berg was an old Swedish gentlemen. You can’t throw that out of the window right away. We decided that, at an appropriate time, we’d change the name. In Paris and other places we’ll do the same.
You don’t own 100% of some of your acquisitions in Europe – you own only 80% of Cimo in Italy and 75% of Axias in Greece, for example. Is that a deliberate policy?
That was the only possibility at the time. The policy is to go to 100%. We will raise our stakes in the ones you mention soon. It’s not always possible right away. If we don’t go as far as 100% it’s often because management keeps a bit. We own 100% of the most important ones, except Hoare Govett Asia where we don’t yet own 100% but we’re coming closer .
Why does the Guoco group own 30% of Hoare Govett Asia?
When we bought Hoare Govett, we didn’t buy the Asian part. There was a management buyout and they changed the name to hg Asia. But last year we bought a majority stake in HG Asia and changed the name back to abn Amro Hoare Govett. At the time of the management buyout, they were helped by the Guoco group, which still has a stake. We still think it’s helpful to keep Guoco involved. It’s one of the top Chinese groups. They’re very supportive, but don’t interfere in management at all. They do bring deals, ideas and relationships. If they ever wanted to get out, we’d certainly buy their shares. But for the time being we’re happy to have them alongside us.
Are there any gaps in your investment banking network you want to fill – Germany perhaps?
We’re small in Germany, it’s true We didn’t buy anything there – we decided Germany was too close to Holland. We do German investment banking out of Amsterdam. It’s extremely difficult for any foreign institution to be successful in the German investment banking market. Perhaps only JP Morgan and one or two of the Wall Street firms do some occasional interesting business there. The local banks are so dominant. It’s true we’re weak in corporate finance and equity in Germany, but it’s not the case in treasury or fixed-income products. Because the guilder is closely linked to the Deutschmark, we’ve considered the Deutschmark almost our home currency for years. When we take positions, we do it also in the Deutschmark market since there’s almost no currency risk and the Deutschmark is a lot more liquid. And we’ve lead-managed hosts of Deutschmark bond issues for non-Dutch borrowers.
Where else do you have gaps?
Nowhere. In Europe we have investment operations in London, Ireland, in all four Scandinavian countries, in Belgium, France, Greece, Italy and Spain. In some of these countries we’re still fairly small. But you can’t win the world in one year. You need a bit of time. We don’t mind. We’re an old institution: we like to take the long-term view, build step by step and then be successful – but without paying too much. That way takes more time, and management-wise it’s not simple because you have to combine all those cultures and names into one. That’s something the Dutch seem to be good at: making a lot of nationalities feel happy in one organization.
The key to building your network must be to get your Italian clients, say, to buy Scandinavian equities through ABN Amro. Do they now?
Yes – not enough, but it’s a start. For example, we’ve been successful in getting lead management mandates in many of these countries. It’s not for nothing that we’re lead-managing the equity issue for Electricidade de Portugal via our joint venture with Rothschild.
But is the network helpful in that sort of thing? I wouldn’t think Alfred Berg had enough corporate business to help your Eurobond people win mandates.
Only seldom, yes. But if there’s a multi-country transaction then it does help like hell. If a Scandinavian company wants to buy something in London or vice versa, we’re wonderfully positioned because we can offer local advice in London and in any of the Scandinavian countries. Then we very often get the mandate.
Were you tempted to buy a big investment bank like Warburg or Kleinwort Benson?
We’ve looked at it, we’ve been tempted, but we’ve never seriously considered it. When Warburg and Kleinwort Benson became available, we had already bought Hoare Govett, which was admittedly a lot smaller…
…and a lot cheaper.
A 30th of the price. SBC paid over £850 million for Warburg; Hoare Govett cost us about £30 million.
If we’d bought a large investment bank like Warburgs or Kleinwort, then we’d probably have had the same kind of success as SBC and Dresdner are having. But there would have been a lot of risk in it, and we’d have killed overnight what we were building up in Hoare Govett, and we would have lost our credibility with the people in our network elsewhere in Europe. We’d told them we were going to take the gradual approach. But we did consider those banks – you have to look at every opportunity.
But doesn’t that mean you’re still not as profitable in investment banking as the others?
I can give you some interesting figures about the profitability of our investment banking operation compared other European banks. Although the market perception is that we’re not as big as they are, our profitability is comparable. In 1996 we made more money pre-tax in investment banking than Deutsche Morgan Grenfell, bzw and Lehman Brothers. Of course we’re a lot less profitable than Morgan Stanley and Goldman Sachs.
In efficiency ratios, we’re better. Our staff-expense ratio [personnel costs as a percentage of revenue] is lower than most. The ratio at ABN Amro is just over 60%. At DMG and BZW it’s over 80%. Even at SBC Warburg it’s almost 80%. That is one of the reasons we’re relatively successful. The low personnel costs have to do with the fact that many of the investment bank people work in Amsterdam.
Where they’re not so well paid.
We think they’re all very well paid, but the London people think they’re underpaid and some of these Dutch people also think they’re underpaid.
Your staff in Amsterdam must know that their counterparts in London get more. Isn’t that a problem?
It is a bit of a problem, but there are ways to solve it. We’re increasing the pay of our investment bankers in Amsterdam for exactly that reason. Also if you transfer people from Amsterdam to London or New York for some time, and then they come back, it’s a problem. We have to deal with that as long as we do not introduce our revised bonus system.
You looked hard at buying Barings, didn’t you?
Yes.
Was ING just faster than you?
No, we were ahead of them. I was called by Andrew Tuckey, chief executive of Barings. We were very close to Barings. Barings had been an old friend of the Netherlands Trading Society [ABN Amro’s predecessor bank] for decades. Tuckey asked me to form a team, and we looked at Barings over that weekend. At the start they thought they’d lost only £600 million; later it turned out to be almost £1 billion. We were the first there with a high-level team, but we came to the conclusion that we were staring into a black hole. Nobody at Barings could tell us what the real losses were. We said: “There’s no way we’re going to take that risk.” Then we looked at buying parts of Barings: corporate finance and asset management. The administrators and the Bank of England were willing to consider buyers of pieces of Barings, because at that time nobody was interested in the whole thing.
Then ING came along. They had nothing in investment banking in London: we already owned Hoare Govett and other firms. We didn’t need all of Barings. ING was the only one who wanted it all. They took the risk of accepting that they couldn’t be 100% sure how big the hole was. Of course, for the seller it was by far the most attractive option to sell it to one buyer rather than in bits and pieces. I didn’t really mind losing out. I’d loved to have owned Barings Asset Management, but it wasn’t critical to our success.
You’ve built up investment banking, particularly fixed income, partly by hiring from outside. But you did this rather differently to Deutsche Morgan Grenfell. You hired a few relatively low-profile individuals such as Jonathan Greenwood [from Goldman Sachs] rather than a single big name like Edson Mitchell [of DMG]. Why did you take that approach?
It’s a cultural thing. It’s against the nature of our bank to buy well-known high-flyers, not only because they’re more expensive – although the Jonathan Greenwoods of this world don’t come cheap – but also because they create unrest. Lower-profile people are far more prepared to adapt to the ABN Amro style of working. They don’t think: “We have a new shareholder, but we still run the show.” Greenwood loves ABN Amro.
Why did you set up the joint venture with NM Rothschild?
Rothschild had come to the conclusion that they lacked distribution. We’ve got very strong distribution but hadn’t had much success in privatization and international equities. The idea of combining forces was born in the minds of the ABN Amro and Rothschild people who had worked together on deals such as the two tranches of KPN [the Dutch post office, privatized in 1995]. Wilco Jiskoot, Menno de Jager, Charles van Schelle from ABN Amro had got on extremely well with Tony Alt and Matthew Westerman, the deal-makers from Rothschild. They came to Evelyn de Rothschild and myself and suggested we team up in a fairly unusual way. It’s unusual in the sense that it’s an unincorporated joint venture.
It’s just a working relationship?
Yes, a fee split and cooperation agreement.
How are fees split: 50:50?
Yes, it’s as simple as that. However, for Holland there is a different fee split, because we bring in the deals. The split’s much more in our favour, although we haven’t disclosed how much. We excluded the UK from the agreement because it could have hampered Hoare Govett’s brokerage activity.
Doesn’t the fee split cause rows? Suppose there’s a long-standing Rothschild client that does a deal with ABN Amro Rothschild. If the fees are split 50:50 that must upset the Rothschild people.
We’ve just celebrated the first anniversary of the joint venture, and I tell you it’s been a fantastic success. And no, there aren’t arguments about the fees because in some cases it’s Rothschild that feels a little frustrated because it’s their deal and they have to give 50% of the fees away, but in other cases it’s the other way around – ABN Amro brought the deal. It has worked out extremely well. We have done dozens of deals together in the first 12 months. There is an enormous amount more in the pipeline. Evelyn and I meet from time to time and we came to the conclusion again just recently, that it’s going well. So I won’t change anything.
Rothschilds’ earlier relationship with Smith New Court wasn’t very happy; yours seems better. Is it a cultural thing: you are both rather upper-class organizations where Smiths was lower class?
Possibly. It might also have to do with the fact that Brits and Dutch get along well. It’s not a coincidence the only successful multinational conglomerates are Anglo-Dutch: Shell, Unilever, Reed Elsevier. One way or another, there seems to be some chemistry there.
Could the relationship extend to, for example, M&A?
It could. But we’ve said in-house and to them: “Let’s not over-do it.” We don’t want to give the impression that the Dutch are trying to overpower them. We want to have this joint venture grow further in a natural way. If I was to suggest changing the fee spread in our favour, that would hamper our success. One day it might be that they or we think the time is right to grow our business, for example in M&A.
In the back of your mind is there the thought you might eventually acquire Rothschild?
No. It is not in the back of my mind. I don’t think it would be wise. They’re not Warburgs, they’re a different kind of people. I don’t believe they’d feel happy in a large organization, and I fully respect that. I think the way we co-operate now is probably the best for everybody.
But isn’t the joint venture rather a short-term solution? If you want to become a major European investment bank, shouldn’t you have your own M&A and merchant banking operation?
I fully understand your question. What you’re saying is not rubbish. But it’s also a matter of what is feasible. There were not that many alternatives. Rothschild was not for sale and is not for sale. Lazard and a few other names left in London are also not available. So you have to make up your mind or do what is feasible. It’s perhaps not the ideal solution but, under the circumstances, it was probably the best solution available. So far we don’t regret it at all.
What about investment banking in the US? You bought Chicago Corp, a rather unknown firm.
The US investment banking market is rather unusual. There are the six bulge-bracket firms, but below them there is nothing for a long time until you arrive at a long list of hundreds of smaller investment banks. There is an enormous difference between the top six and the rest. We said to ourselves that, since our strong hold in commercial banking is the mid-west, why don’t we try and find a good, admittedly smaller, investment bank in Chicago. Chicago Corp is the number two investment bank in Chicago. In Chicago it has a very good name. It just lacked a bit of distribution capacity and didn’t have the capital base to underwrite large fixed-income issues.
What’s it good at?
They have an M&A operation. They don’t go for the very large M&A transactions, rather for medium-sized deals in the mid-west. They have a commodities business; they have a treasury operation; derivatives; they have good research. They had bits and pieces that were interesting to us, but they lacked capital. Their capital was no more than $100 million. We had already known them a long time. We knew Jack Wing, the chief executive. There was a strong cultural fit between our people in the us and Chicago Corp. We thought the cultural risk was small whereas, if we’d bought Morgan Stanley or someone, there would have been an enormous cultural gap.
When did you buy Chicago Corp?
We closed the deal earlier this year. We decided on the acquisition almost two years ago, but it took 14 months to get approval from the Federal Reserve. The approval process dragged on because it was a commercial bank buying an investment bank, and a foreign institution buying a local institution. They’re far tougher on foreign institutions than they used to be because of the Lavoro Atlanta and bcci cases. So it’s still early days. We’re now combining Chicago Corp with the investment banking capabilities we’d built up ourselves in New York and Chicago. We’ve changed the name to ABN Amro Chicago Corp. This is a stepping-stone, a platform to grow further, into corporate finance and equity transactions mainly in the mid-west, and into trading and treasury in the whole of the us.
You’re always rumoured to be looking actively at other acquisitions, such as Montgomery and Robertson Stephens.
We’ve never came close to doing a deal, but obviously we looked at them. They would have fitted our strategy, but the Chicago option was much more interesting because we know the region.
Will you grow your US investment banking operation substantially?
Yes, but we’ve now decided to grow organically, on the basis of what we have. We employ 1,500 people in the us in investment banking. We’ll hire good people and send others from Amsterdam and London. We have now quite an organization in the process of being built up. That won’t immediately bring profits, it will take time. If you don’t buy one of the large bulge-bracket firms that’s unavoidable.
Have you ruled out ever buying a Salomon or a Lehman?
In practice, yes. But you never know. If something dramatic happened, it’s not impossible that there could be an opportunistic deal. Those outfits have their particular own cultures. It would cause a lot of management problems, so it’s extremely unlikely.
Did you think very seriously about buying one of those two?
Yes, but we never talked to them. We thought about it seriously but came to the conclusion that it wouldn’t be a sensible move.
Do you have a target for investment banking, for example to be one of the top 10 global players or top three European houses?
I don’t think those would be the right targets, because we’re not an investment bank, we’re a universal bank. We want a balance – that’s one of our great strengths. In a good year perhaps 25% of our profits come from investment banking, but in difficult years that might go down to 15%. I don’t mind because that mix has created a very reliable profit generator. We’re able to balance the more volatile profits in investment banking with the far more stable return from commercial banking, which grows steadily every year.
Many people argue that investment banking will split into 10 global-bracket firms and, below that, only niche players. Banks in the middle will get squeezed. Can ABN Amro get into the top 10, or will you one of the banks to be squeezed?
That’s a bit too black and white. It’s theory-book reasoning. I believe there will be a few very strong top players such as Morgan Stanley or Goldman. Then there will be a larger group of more than 10 banks that will be highly profitable in good years and reasonably profitable in worse years. We’re certainly in that bracket. I’m not worried whether we’ll be number nine in the world or number 12 and that, if we’re 12, we’re out.
To take that argument further, many US bankers believe that an increasingly small number of institutional clients are becoming increasingly important for investment banks, and that these clients are dealing with only a handful of global firms. Do you accept that?
Yes, that’s why we introduced the senior banker concept.
How does it work?
It addresses exactly this issue. We too believe it’s wise to focus attention, not on the whole world, but more selectively. So a couple of years ago we introduced the concept of senior bankers to make the best use of our combination of commercial and investment banking capabilities. The senior banker represents all that vis-à-vis the customer. So we have a single senior banker for KPN or [Dutch electronics company] Phillips, for example. We have one man, with the team to help him, who devotes a large part of his time to that one relationship. For instance, the senior banker responsible for KPN knows not only the ceo and the treasurer but perhaps another 15 or 20 of the people who are driving KPN’s business – not only finance men but business people too. This banker told me yesterday that he spends more than 20% of his time just on the KPN relationship.
How many clients would he cover?
Not more than six or seven. Not all his customers get 20% of his time, of course. But KPN is a good example because it’s such an interesting customer. There’s a lot going on there. This man – and the same applies to all these senior bankers – should be in the know about investment banking, about our investor relations service, about payments systems, about our credit-facility umbrella which we make available in 25 or 30 countries to multinationals. In that sort of overall relationship, we have more to offer than a Wall Street firm, because they can’t do business with a multinational in Ecuador or Taiwan.
In terms of organization, is investment banking separate from commercial banking?
It’s a separate line of business. We have five divisions. Three are profit centres: domestic, international and investment banking. The two others are support divisions: risk management and resources.
The senior bankers sit above those divisions?
They’re part of the IBGC, the investment banking and global clients division. We have to locate them somewhere. They’re driven by Peter Casey, who is a senior executive vice president. He’s one of the most senior non-Dutch in the bank. He’s responsible for the senior bankers, but they cut across the whole bank including the domestic division.
Why didn’t you integrate Mees Pierson into ABN Amro rather than selling it as a potential competitor.
The answer is very simple. Mees Pierson was a wonderful outfit, with a good name and good people. They still are, I think. But to have a subsidiary as a competitor in our home market in investment banking didn’t make sense. Our home market’s too small. We tried to leave them their independence, to let them run their own business. But they were constantly competing against us. They went to the same large corporates as us. You can’t explain that to your customers.
I see the problem. But why not say: “This doesn’t work, let’s integrate it”?
Then we would have killed the franchise.
They had that much pride in their name.
Yes.
But it had merged to become Mees Pierson only in 1990.
We couldhave merged them into ABN Amro. But they were totally independent. Our management was involved only in approving larger credits. Apart from that we left them alone. I was on the board of Mees Pierson for a number of years, so I know the people well. They were constantly fighting with ABN Amro for business. They were delighted every time they won a customer from us. In marketing terms, we were the main enemy.
If we had integrated, we’d have lost the over-lapping relationships. They couldn’t bring us any new business, because we already had a relationship with all their big customers. We would have lost their good people. They had a reasonable but not excellent return: 10% or 11%. It was a much better solution to sell them to Fortis, which is a first-class organization, but non-existent in investment banking. With Fortis as a parent, Mees Pierson didn’t have the same integration problems they would have had with us. The negative, of course, is that we have created a potentially strong competitor. But we’re confident we can continue to beat them.
You’re building a big new office in London. How will you divide investment banking functions between Amsterdam and London?
The new London building is not just for investment banking – commercial banking, private banking, treasury and all that will be in it too.
We have 6,000 people altogether working in the investment banking division. The majority are still in Amsterdam, but a big minority is spread around the world: in London, but also Chicago, New York, Singapore and all the 30 places where we have investment banking.
The heads of divisions are still in Amsterdam?
We have a executive committee of the investment bank that comprises seven people. Some of them are based in London. They have a regular meetings on Tuesday afternoons either here [in Amsterdam] or in London. There is a lot of flying up and down from here to London. It’s not far.
We’ve developed the AmLo concept – Amsterdam, London. We have two dealing-room locations, one in London and one in Amsterdam. But we run it as one dealing-room, one position. They’re in constant a tempocontact with one another and run one book. If we’d moved everything to London, costs would have gone up tremendously and the end result would probably have been lower than it’s today. This AmLo concept has been working well for a year and a half. We have the best of both worlds.
Let’s look at some of the areas where you’re still weak. You’re not yet a top-15 player in derivatives, except in the Dutch market. Can you become one?
We have a big derivatives operation in the us. In London we have a large team which came to us about 18 months ago. They couldn’t start right away because of legal constraints, and because we had to build up our systems. So we’re later getting going than we hoped. The team has been up and running since May 1. In the first half of 1997, we made about $124 million altogether in derivatives. Not bad – but it’s early days.
What about foreign exchange? You’re not so strong there either.
That’s another thing that’s not perceived correctly in the market. If you compare our foreign exchange revenues with those of the big American banks, we’re doing very well. In the first half we made $213 million from forex. That’s clearly less than Citibank, but it’s in the same range as the others. Where we make most money is in emerging markets: we have dealing-rooms for foreign exchange in close to 70 countries. In the dealing-rooms in Mombasa, Buenos Aires, Taiwan or Jakarta we make an awful lot more basis points than in Holland or London.
What’s the balance between proprietary trading and customer business?
In most of these dealing rooms it’s about 90% customer and 10% proprietary. In the financial centres it’s something like 70% proprietary and 30% customers. In London it may be 90% proprietary and 10% customers. In the Netherlands, it would be something like 50:50.
The first half results in investment banking were disappointing: down 9% before provisioning. Why the fall?
I understand your question but it can be explained. In 1996 we did not accrue bonuses in the securities network proportionally over the months. As a result we accrued too little in the first half of 1996. When we now compare the first half of 1997 to the first half of 1996 it looks – because of this – as if we have gone down a little. Besides: first half 1996 already was an exceptional period for trading as every one knows.
It is also because we’re in a build-up phase in some parts of the world, costs were up. Revenues don’t come in overnight, but you start with relatively high costs. That’s the case in London, Singapore and New York.
Expenses in investment banking were up a huge 50%. Will they continue to grow that fast?
Oh no. We have added several people in the three locations I mentioned. They don’t come cheap. So there was quite a leap in expenses caused by that. But that kind of an increase won’t continue.
We are confident that the revenues will come through. The increase in costs put a bit of a pressure on the investment banking results in the first half. But I’m not pessimistic about the second half.
Your long-term target for earnings per share (EPS) growth is 7.5%, but in the past few years you’ve managed 20% to 25%. Is that exceptional and will it now slow?
On the day of the merger, we set a target of 6% for eps growth. At the beginning we only just made that. Then we started doing better, so we increased the target to 7.5%. By that time where we were already producing over 7.5% growth. Recently we’ve over-shot that new target dramatically. We’re discussing whether to officially increase the 7.5%. We’ve always said two things about that 7.5% target, though. First, it’s an average, not year on year. Second, it’s a target and, when we set targets, they tend to be on the conservative side. Growth of EPS in the first half was 18.3%, but if you recalculate it over the past five years, the average is closer to 7.5% – although still over it.
Your return on equity target of 13% is quite modest by the standards of good US banks or UK banks.
We’ve increased that target too – from 12% to 13%. But we’re not the kind of bank to change targets every year. We’ve told the analysts time and again that these targets should be looked at as a minimum not a maximum. But if there are good reasons to revisit the targets. We will do so.
Your assets are growing very fast – by 31% in the past six months. Can you grow assets that fast without creating problems?
There are several reasons for those steep increases. First, the foreign exchange rate impact, which was substantial. Second, we added Standard Federal Bancorp, Magyar Hitel Bank and Chicago Corp. They were all in for the first time. Third, a lot of trading, particularly repo business, is reflected on the balance sheet. And the fourth reason is organic growth in the existing business.
There’s another comment I’d like to make. Banks used to look at both bis ratios, and the so-called leverage ratio used by the American supervisors. The leverage ratio is not very sophisticated – just capital as a percentage of total assets, irrespective of the quality of the assets. That ratio blocked us from increasing our trading assets – these are fully hedged with zero risk. The Federal Reserve is no longer so strict about the leverage ratio. That let us take the brakes off the growth in trading.
With your interim results, you’ve become more transparent. Why?
It’s a change in philosophy. It was about time for ABN Amro to move from the old-fashioned conservative Dutch way of accounting in the direction of a more transparent, open, international way.
The Dutch central bank and accounting standards body were in favour of the old way. But over the past few years they’ve relaxed their view a bit, certainly on the subject of hidden reserves. We were in favour of disclosing hidden reserves a couple of years ago. But we postponed it until the end of 1996. Some of the smaller Dutch banks were reluctant to disclose. It took a couple of years for the Dutch banking community to agree on this.
Will you go further? You don’t, for example, publish value at risk figures.
That’s one of the things on the list to investigate. We’re looking at whether we should do that as well. We do disclose the risk-weighted assets in the trading portfolio, though.
There are a few geographical areas where you’re weak too: Germany, for example. Why has your German banking operation been such a problem?
I don’t know any foreign bank that’s really successful in Germany.
What about Citibank or JP Morgan?
Citi tell me they don’t consider themselves successful. I think they are, because they bought Kunden-Kreditbank CHECK, which is a wonderful operation.
The situation in Germany is that there’s a strong tendency for German companies to want to bank with German banks. Unfortunately, that’s not the case in Holland: Dutch companies love to go to a foreign bank. However good you are as a foreign bank in Germany, you will never achieve the same return as the Germans. We make a return in Germany, but it’s far too low. The problem is we have 10 branches. For such a big country, that’s either not enough – or it’s too many.
Both Amro and ABN had bought banks in Germany. We merged the two local operations and ended up with 18 branches, some of which were in very small towns. We’ve now cut that to 10. But both the banks we bought were too small. That’s not the way to conquer the German market. If you really want to be an important player, you have to buy a big bank.
There have been lots of rumours that you might buy Commerzbank. Any truth in that?
Not at all. There are also rumours that we’re interested in NatWest…
There are very few banks you’re not rumoured to be buying.
If you are an active operator in these markets, you have to look at NatWest – of course. But for many reasons neither Commerz nor NatWest are interesting for us.
Your strategy in France is interesting. You’ve bought lots of small banks there.
We have about five labels in France.
Tell me about them.
The flagship bank in France is Neuflize Schlumberger Mallet (nsm). It’s a large operation. In 1984 it was the largest non state-owned bank in France. When, that year, all the big banks were nationalized, the government drew the cut-off line just above nsm. Rothschild was the smallest that was just nationalized; nsm was the biggest that was not. nsm is owned 88% by us and the rest is in the hands of family members and institutions. That’s a wonderful combination. We run the bank. It’s in commercial banking but 70% of the business is private banking. It has a fantastic private banking franchise, so we will probably keep the name. The French love French flavour, French names and the French way of doing business. If we changed the name of nsm to ABN Amro we’d probably lose quite a lot of private banking customers.
But they have balance-sheet constraints because of their fairly limited capital. They couldn’t do a $100 million deal with Michelin. So we also opened an ABN Amro branch in Paris to do bigger deals and treasury operations. Then in 1990 we acquired Massonaud Fontenay Kervern, a stockbroker. Massonaud is the number three broker on the Paris stock exchange. Then we bought Odier Bungener Courvoisier, another small private bank, from Credit Suisse. It has mainly Jewish customers, where nsm has Protestant ones. Such things still count in France. We have left their names, but we are now integrating the back offices. Then recently we bought Demachy Worms. We will change the name over time. Its custody business fits wonderfully into the rest of our banks in France. We also bought Banque de Fenix, a custody business, from agf.
Will you change Massonaud’s name to ABN Amro?
Yes, the broker will eventually change its name. But there is still a Mr Fontenay and he loves his name. We could behave like an American bank and say, “That’s nonsense”. But we don’t. We like to keep those good people because they’re part of the assets of the bank – as long as they’re in agreement with eventually changing the name to ABN Amro. The names will all change in the end, there is no doubt.
France is the largest European operation of ABN Amro outside Holland. We’re still not big enough there in investment banking, but we’re working very hard at it. We’re the largest foreign bank in France, and have a good customer base. But we’re behind Lazard and Paribas, no doubt.
Will you make a big acquisition in France? There are some ailing banks that would be cheap, for example Crédit Lyonnais.
In European banking markets there will be lots of mergers, but in my view most of them will be local mergers. French bank groups will merge with other French banks, and German banks with German banks, as is taking place in Bavaria now. There is over-capacity in all these markets. Most of the banks there are too small.
There is little point in a Dutch bank and a French bank merging, because there is no branch network overlap and so no way to cut costs. So every time there is a possibility for us to buy a bank in France or Germany, the local competition will always be in a position to pay a higher price. A local bank can increase the return on its investment dramatically and quickly by squeezing out costs.
We’re looking at all these possibilities in France, Germany and Italy. We’re constantly on the look-out, because an acquisition would be nice. But our calculations each time don’t convince us it would be value for money. We wouldn’t create value for our shareholders if we made the acquisition. We have a strict hurdle for all our investments: they have to bring in a 13% return on investment after tax. If you buy a bank at 20 times earnings, you start with a 5% return. You can only bring that up to 13% – a hell of an increase – by doing an awful lot in terms of decreasing costs and increasing revenues. You’ll never manage that in France, for instance.
There’s another reason. France and Germany are tough markets. The returns of even the local banks are low. In France, the banks don’t make 10%; the top banks in Germany make perhaps 11%. That is very understandable, because 60% of the German banking market is in the hands of non-profit organizations – Sparkasse, co-operatives, Landesbanken and the like. In Italy it’s far worse: the average bank isn’t making more than 2% or 3% return on equity. The banking environment in these countries is such that it’s very hard to bring your return up to what we feel is an appropriate level. Simply, even the best performer in the local market isn’t achieving it.
Couldn’t you copy what you’ve done in the US: go, for example, to a region of Italy, buy two or three banks in that region and to put them together to cut the costs?
That’s indeed what we’ve done in the mid-west of the US. We’ve bought eight banks since 1979. We bought them all at reasonable prices, although the later ones were more expensive than the early ones. All the time we made the calculation that they should bring us a 13% return at the latest in the year three. We have been able to bring down the costs and increase revenues. But the difference is that us banks there areprofitable anyway: they make profits of between 12% and 20%. So if you are a state-of-the-art bank, well run and efficient, the local banking community allows you to make 13% or 15% easily. That’s not true in Europe.
What about the UK? Banks there can make 25% on retail business – and banks are still for sale.
That’s true, and we have been looking at opportunities. There, this argument is not valid, but the other argument – that there is no overlap between our network and the network of a bank we acquired – is valid. The fantastic performance of Lloyds TSB, for example, came about because after all the acquisitions they combined networks. We don’t have an overlap. So Lloyds is able to pay more than us.
But you could do what National Australia Bank, buy several banks and put them together.
They did it in the clever way. But we should have done that earlier. Then we could have made a first acquisition, and started building a franchise around it.
You were quoted in the newspapers saying you were interested in buying CIC in France. I was asked at a press conference whether we were looking at CIC. I said we had reopened the file because the situation in France had changed, but the likelihood of our buying it was very small. Some French newspapers and only the London edition of the Financial Times took that and blew it up with the headline “ABN Amro ‘looking into’ CIC purchase”.
The truth is it’s just one of the files on our desks. We have dozens of files open all the time. Because CIC is one of the very few banks in play, we’re forced to look at it. The former French government wouldn’t sell gan without CIC. The new government seems prepared to split the two. That’s changed the situation. But I must underline that you shouldn’t take this as a signal that abn Amro is going to buy it.
A lot of people say you need a second home in Europe.
There’s some truth in that.
But where can you find one?
That’s the difficulty. On the day of the merger, we said we were going to look for a second home market in Europe. At the beginning, we thought it would be a possibility, perhaps in Germany or Belgium. We thought we could run the back office in Amsterdam for operations in a neighbouring country. Then we could repeat what we’d done in the US where we bought banks in neighbouring areas and operated the back office out of Chicago. We could try to do that in Europe by buying a bank in Germany, Belgium, or possibly also France, and getting all the administration done at our computer centre in Amstelveen. But we began to realize it would be an enormous risk to buy a big bank, close the local administration and put it all in a centre far away. That’s especially true when the products aren’t exactly the same. In the US a home mortgage in Ohio is exactly the same as one in Illinois. But that’s not the case with a home mortgage in the Netherlands and one in Germany. Even savings accounts in Holland are different from ones in Germany or Belgium. So it’s far more complicated to combine back offices in Europe than it’s in the US.
The next problem we faced is that there are very few banks available to buy in those countries. The ones that might still be available are either not very good, so you have to turn them round or, when they’re good, they’re expensive. Turning around a foreign bank is hard. It’s very risky to send a bunch of Dutchmen to revive, say, a French bank. The French will think they know best, even when they’ve made a mess of their bank. It’s not impossible – and some banks have done it, but it puts a major strain on management. So we decided against that. Clearly there have been some opportunities. Crédit Lyonnais today is an example of a bank that needs to be turned round. In the past we also have looked at BFG in Germany, which is owned by Crédit Lyonnais, but decided not to buy it. I’m happy we didn’t.
Does that mean you’ve given up on the idea of a second home in Europe because it’s just not practical?
We’ve said it’s no use looking intensively at possibilities any more. All the opportunities that come along are presented to us by active investment bankers anyway. So we won’t miss any. We have an acquisition unit here that starts working on each idea we’re shown, and gets out a report within a couple of days. We study about 50 acquisition opportunities a year. But only very few work out. So we are constantly looking, but not actively in obvious markets like Belgium any more.
Your asset management unit has only about $68 billion under management. Will you make acquisitions in this area?
It’s in our policy, but it’s not a priority. We would like to increase assets under management. We wanted to buy an Anglo-Saxon asset management company partly because the us and uk are where new ideas, new instruments and new products are invented.
Isn’t Dutch Fund Management the best in continental Europe?
Yes, but not because we’re more professional only because we have funded pension funds. We have huge institutional investors in this country.
You think Dutch fund managers aren’t much good?
I have no reason to say anything negative, but London and New York are clearly ahead in terms of professionalism. However, we’ve come to the conclusion that, when these firms became available – and they have done from time to time – the prices paid for them were so high that we couldn’t get a 13% post-tax return. To make these acquisitions, you had to take a very long-term view. We’ve looked at several possibilities, but we’ve now decided to forget it. We’ve stopped looking in the United States. We’re going to do it in our own.
Do you have the staff and expertise to do that?
We do, but the honest answer is that we’d like to have more. Now we’ve decided no longer to look for acquisition possibilities, we’ve started to hire people ourselves. That again takes a bit of time.
Are you looking for star fund managers?
No, although there was the famous Ms Horlicks story [Nicola Horlicks was a well-known London fund manager for DMG, who that firm fired when it discovered she’d been talking to other firms about jumping ship]. The press linked her name with ABN Amro but….
Did you try to hire her?
She talked to us, that’s true, but we never really tried to hire her.
I can’t see her as an ABN Amro person.
I’m glad you say that because it proves my talk to you has indeed got across that message [laughs]. She’s apparently very good.
What about insurance – could you merge with an insurance company like ING or Credit Suisse have done?
It’s unlikely, but it’s sensible to look at the possibilities. I don’t rule it out. But an important factor is that, under US law, it’s not possible to have both a bank and an insurance company in the US.
So you couldn’t merge with Aegon [the largest Dutch insurer], for instance?
Either they’d have to stop their US insurance business or we’d have to stop our banking business. Neither of us would ever do that. ING solved it [when NMB Bank merged with insurance company Nationale Nederlanden by giving back their banking license. They had to stop commercial banking in the US market. US NatNed had a profitable business in the United States, so they decided to keep it. I’m intrigued what Credit Suisse and Winterthur will do – they have to make the same choice.
We’d never give up our us banking business. So we can theoretically look only at a combination with an insurance company which is small in the US. There are very few like that. All the good insurance companies are active in the us because it’s such an attractive market.
What we did instead is to start our own insurance company in Holland. We’re working hard to sell insurance products through the branches. Our aim is to have 10% market share by the year 2000. And I think we’re going to make that. The Dutch insurance market is very attractive. The insurance companies here are all very profitable. In France, we have a life-insurance joint venture with Axa; we own 60% and Axa has 40%. That’s very profitable. We’re setting up bits and pieces elsewhere. In Hungary we recently bought Magyar Hitel Bank, which already had a well-developed plan to start an insurance business. We have chosen about five markets where we will sell insurance products.
It’s noticeable you have a lot of branches in all the countries you’re present in. In Spain you have 6, in Switzerland 8, in Morocco 22. Why so many?
Because we’re a commercial bank. We differentiate ourselves from other foreign banks by having these big local networks. If we targeted just the top local companies, we wouldn’t have to be in all those other places. But we’re also interested in providing commercial banking services to tier-two and tier-three companies, so we need a presence in Surabaya, in Barcelona, or in other secondary centres. In France, for example, we have 26 branches. Except Deutsche and Citi, no other international bank has a branch network in Europe that is as large and well spread as ours. Only these three banks have a presence in all the eu countries. And we have several branches in most of them.
All these branches make money: we never open a new branch unless we’re convinced it will be profitable in year two, and really profitable from year three on.
Presumably the marginal cost of a new branch in a country is quite small.
Very small. Once you have a back-office function, it can handle 30% more turnover with almost no extra cost.
The key is having the right local guy. You need a top manager who knows the market in, say, Delhi. If you just send someone from Bombay, you can forget it. We had a wonderful guy in Dehli, Romesh Sobti. He made the Delhi office highly profitable. Now he has been made country manager for India. There are many examples like that. That’s different from what other banks are doing. They’re interested in being just in Bombay and forget about the rest of India. We have a network of 900 branches outside the Netherlands – that’s large.
That number includes the US?
Yes, 427 are in the us. But we have, for example, 41 branches in Brazil too.
How do you get your branch manager in Bombay, who joins from a local bank, to become culturally an ABN Amro man and work as part of the network?
First, our experience is that people like to come to work for us. The perception is that ABN Amro is a bank that’s good to work for. We’re here to stay; we don’t close down branches easily. That lets us attract good local people. We explain to them what our strategy is, and that we have a very strong inherent culture. We don’t lose many people either. We have a very low turnover rate – even in highly competitive markets we lose a below-average number of people. In Holland, we hardly lose anyone.
Why?
It’s not a matter of pay. We pay what we should – market rates. In Holland people clearly like to work with us because we’re the largest and by far the most international bank. Students love to come to us. We recruit many from universities.
Internationally it must be harder. Take your guy in Barcelona. His first option is to go to a Spanish bank, and then perhaps to a big American bank because that sounds sexier and is better paid. It needs a leap of faith to move to a Dutch bank he doesn’t know well.
You’re right. But how do we find the guy in the first place? You first have to have a top-rate local country manager. That’s key. If you start by hiring second-tier local people, then you’re never going to be successful. Ignacio Muñoz Pidal, our country manager in Spain, is really top class. He’s built an excellent organization and found good local managers for our branches.
How would you characterize your culture?
That’s difficult – it’s the softer part of management. We have a very strong concept of teams. We don’t have many high-riders who dominate a business or department. That’s also true of the managing board. I’m chairman of the managing board, but everyone has the same right to speak as me. I’m not a ceo-type chairman. We’ve never had that.
We’re starting to introduce a code of values in the bank. They express what sort of culture we want for the institution.
I felt this was necessary because we started with two cultures: ABN and Amro. We employ a mix of nationalities and we’re spreading geographically every year. Also, we’ve acquired several banks which had they own strong cultures. I said to my colleagues on the board, if we really want to make one bank of all this, we have to implement a common set of values. I’ve been working for almost two years to get these values on paper. I’ve spoken to many people in the bank, Dutch and non-Dutch, male and female, all nationalities.
What’s in the value statement?
I’ll tell you. It describes the main values you should adhere to whatever part of the bank you’re in, wherever in the world. The four values are: integrity, teamwork, respect for one another, and professionalism. I’ve been repeating this for the past year. They are very soft, but very relevant, things. Teamwork and respect go together of course. The commercial banker has to respect the investment banker. And investment bankers also have to respect commercial bankers.
That’s rather harder.
Indeed. Teamwork is important to us because we’ll only be successful as a universal bank if we can combine investment and commercial banking capabilities.
We put integrity on top for obvious reasons. We’re in many countries where integrity perhaps isn’t that important, where bribes are accepted. As ABN Amro, even in those countries, we have to stick to corporate rules of integrity. We might lose a deal here and there because we’re not prepared to pay bribes. But people will still want to come to us. That’s the only way to win.
These values haven’t been announced yet?
They’re in the process of being announced. They’ve been decided. We had long discussions in the managing board, several off-site meetings where we spent hours deciding whether there should be four, five or six values and which ones they should be. It’s been a wonderful experience for all of us. Every division will now come up with a plan for how it will apply the values in its area. By the end of this year, they’ll all be implemented. Rynhard van Tets and Wilco Jiskoot, heads of investment banking, had a big meeting of their division in September to discuss the values. The domestic division headed by my colleague Rykman Groenink and the international division of Michael Drabbe are doing the same.
We’ve shown each division a video. On it I explain why the values are necessary and what they mean. Other people talk about their own experience. I think that was very successful. The video will be used by groups throughout the bank – in Taipei, in Arnhem, in head office, in the dealing-room. On the basis of the video, there will then be discussion on how they are each going to live these values.
Are your overseas operations all run by locals, or do you often put in a Dutchman?
We did that in the last century – simply sent in a Dutch expatriate. That would no longer work. We have now a local guy in about 70% of the countries and 90% of the branches.
How much autonomy does that person have?
A great deal of autonomy, except in terms of risk. We run a very tight shop in terms of risk delegation. Take the guy running Pakistan, a very good local Pakistani called Atif Bajwa. He can’t grant credits of more than $5 million. That’s small. He has to go for approval to the Asian credit committee, which is in Singapore. Over $25 million, it goes to Amsterdam. The credit culture is very strong in our bank.
What about business autonomy? If the man in Pakistan thinks he’d like to set up a fund management business, for example, can he?
Not without consulting regional head office and the business line manager. The guy in Pakistan sits together every month in Singapore with the regional head and all the other Asian country managers. The same happens in Latin America, Europe and north America. The country managers all know what our policy is, and they’d only come up with a proposal for a new operation if they knew it would fit the policy. In fact, we do have a stake in a fund management company in Pakistan. Our local guy found a good one.
And you acquired it?
No, we acquired a few people. We did it that way. It shouldn’t be a surprise when someone comes up with a proposal. If it is, then something’s wrong. But once we’ve said, “Yes, you may start it”, he is, within reasonable bounds, free to do what he wants and make a success of it.
How do you get the different parts of the network to work together? There must be occasions when it would be useful for Pakistan to talk to Spain, for example.
It’s one of the things we’re reasonably successful at. It’s so logical with our wonderful network that we do work together. Multi-source export finance is a very good example. We recently co-arranged a half-billion-dollar financing for Alumbrera, a big Argentine mining operation. The reason we did the deal was that we could combine export finance with a syndicated loan and local facilities such as currency hedging. We put many instruments together and offered to finance the whole thing with a Christmas tree of transactions. We put together a deal team, with people from Sydney, Sao Paolo, Chicago, Brussels, Buenos Aires and Amsterdam. They all sat together and worked on the deal.
What do you do to encourage the different offices to work together: do you have an annual meeting of all the branch heads?
Much more than once a year. You have constantly to work on it. We keep on stressing both inside and outside the bank that our network is our greatest strength. Once someone has done a deal with a colleague in a far away country, they start to realize that this is something very special.
What do you mean when you say this is a consensus bank?
I’m a strong believer in the consensus model. It means decision-making takes longer than when only one man or women makes the decision. But I’m convinced it’s far more stimulating for other people if they have been involved. Once the decision has been taken, they feel far more committed. I’m convinced that, on average, a group of people make better decisions than just one individual, however good that individual is.
Does this mean that if, on an acquisition, for example, a substantial minority of board members were opposed, it wouldn’t happen?
If someone was strongly opposed to a particular credit or to an important decision like an acquisition, we wouldn’t overrule him.
Only one person?
Yes, if he felt strongly enough and couldn’t be persuaded to change his mind. I think that’s a great strength for a bank, as long as it’s applied properly, which it is here. It seldom happens. But I’ve blocked a deal once in a while – colleagues have too. Since the merger, we’ve blown off at least two acquisitions in this way. There are never any recriminations afterwards, either. If we decided it’s no go, then it’s no go. Everybody forgets the whole thing. Nobody says to the guy: “You spoilt my beautiful plan”.
At the board meeting this morning, for example, we discussed a new bonus system in the bank. This is an example of a decision of such importance that I said I want all eight managing board members to feel totally in favour. For some parts of the bank the new bonus system will represent quite a change. We should all feel relaxed about that change. If not, we’ll keep on discussing it. It will probably take two meetings rather than one. So be it.
A result of this style is that we have quite a few meetings. But we have built efficiency into those meetings. We have two full board meetings every week.
That’s a lot.
They’re on Tuesday and Friday mornings. This morning we started at 10 am. Beforehand we have the credit committee, which starts at 8.30. Credits over a certain amount also go to the full board immediately afterwards. The board went on until 1.30 today – three and a half hours. The same thing again on Friday, perhaps another three hours or so.
I feel very comfortable with this system. Because of it my colleagues and I know damn well what’s happening at the bank. We’re better informed than if we delegated everything. We share responsibility, information and opinions.
What do you discuss at board that takes such a long time?
Every meeting starts with credits, which take on average three-quarters of an hour. We have 20 to 25 credits per meeting – 50 a week.
That is a lot to go to such a senior level. Do you have time to examine them properly?
Yes, I read credits every day. I’ve been doing this for 21 years – ever since I joined the managing board. I’m so accustomed to it and I know the corporate and investment banking relationships well enough, that if Philips, Mitsubishi or Ford comes up…
But surely those aren’t the difficult decisions?
If Ford wants a local uncollateralized and unguaranteed facility in Ecuador, you have to think hard about it. If it’s just a $4 million loan to Ford then of course it’s ok. But those days are gone. It’s all far more complicated. These credits are all presented and we have a discussion.
Our credits approval system is cumbersome because we have many layers. But it can still be very fast when it has to be. If someone in Hong Kong or wherever needs a decision today on a large credit, he can put it on the fax and it’s distributed to the board. Three board members can make what we call an “expedited decision”. If a customer wants a reply today, he gets it. We have a constant stream of these expedited credit approvals. It works.
Then we have a host of other things to discuss: acquisitions, new lines of business, an increase of capital in a particular country. We approve all appointments at the level of evp and over – that’s the top 125 or so. We talk about the monthly results, about advertising, sponsorship – all sorts of things.
It sounds almost like an old-fashioned partnership, where the partners all sat in the same room and knew everything that was going on.
Absolutely. All eight of us should feel responsible for the whole bank, rather than just the two investment bankers for the investment bank division and so on. If something goes wrong in the Dutch domestic division, then the international guy feels it’s his fault too. The domestic division head gets all the criticism of course, but we feel jointly responsible. When I was chairman of the international division, I always read every board proposal even for the domestic division. That means that if a domestic guy speaks his opinion on Taiwan, for example, we’d better listen, because it means he must have thought it over. Perhaps he’s thought of things the rest of us have forgotten.
Isn’t the danger of this system that very little gets delegated?
It’s true we don’t delegate credit approvals or risk. But we delegate everything else. An individual manager can hire or fire people if he wants. He can go in a certain direction. In trading, the dealing room in Buenos Aires, for example, has a set of position limits. Within these limits, the country manager can do what he wants. He reports his positions to his superior in the regional headquarters at the end of each day. It’s only when these limits are changed that it needs to be referred to Amsterdam.
Was the management board system different at Amro and ABN before the merger, or is this the standard Dutch way?
It is rather Dutch. The credit culture was somewhat stronger at ABN than at Amro. Amro had more credit approval authority delegated.
We think our risk-control system has produced good results. Even in bad years our bank has had consistently relatively low credit losses – way below other international banks. We believe this has to do our approval process.
Are appointments made on the basis of consensus too?
Yes. For example, this morning we had on the agenda the appointment of a new EVP. After a short discussion, we agreed to hire the guy. It wasn’t a difficult decision. But we’re hiring a non-Dutch guy at EVP level – that involves an interesting discussion. He’s been interviewed by all eight board members.
I like to be personally involved in hiring top people. I also speak to student recruits from time to time, just to check whether the way we recruit graduates is correct and if we’re attracting the right people. It might also be interesting for those people to speak to me and hear a bit about the bank.
You talk to them at the stage where they haven’t yet been offered a job?
Yes, when they’re very close to striking the deal with the bank.
It must be quite intimidating for them
Hopefully I do it in such a way that they don’t feel intimidated.
What do you look for in a graduate recruit?
Whether he wants to work for an international firm, whether he’s a team player, whether he’ll work very hard, whether he likes what he’s read and heard about ABN Amro. I want to make sure he has a proper impression of what ABN Amro is about.
I gave a speech at Insead at the end of last academic year to 250 new graduates. Afterwards I had a lively discussion with them. They all thought it was logical that we wanted internationally-minded people, but not all of them thought it logical to want team players. Many of them were going either for investment banks or consultants like McKinsey, which don’t always want team players. They thought they could work for their own ends most of the time, and work together as a team only from time to time when it was unavoidable.
Is there a fixed number of board members? You have eight now.
Before the merger each bank had seven, so the day we merged we had 14. Every year since, one or two retired because of age reasons.
It must have been difficult for a few years when you couldn’t appoint anybody new.
That’s true. We asked all the board members to retire not later than their 60 thbirthday, so that has helped. Normally we would stay on until 62. We have now appointed two new board members, Wilco Jiskoot and Dolf van den Brink, so we’re back to eight.
Is that the right number?
Some where between seven and 10 is right.
The managing board is still entirely Dutch. Competitors such as Deutsche Morgan Grenfell or Swiss Bank Corp have several foreigners on their boards. When will you?
I’m looking forward to that day, but it’s more difficult than I hoped.
Why?
We have some very good people in the United States. But they prefer to live in the US. Our ceo in the US, Harry Tempest, is an excellent guy. But he would never prefer working in Amsterdam to working at Chicago. It’s as simple as that. We have good people in other parts of the world too. For one reason or another, non-Dutch people sometimes don’t find Holland so attractive to live in. Not like London.
Isn’t your problem just that the board meets twice a week. Deutsche Bank’s meets once a week so people can fly in for it from London.
But that would never work for us. Not only do we have twice-a-week meetings but the board members all sit within 10 meters of each other. We want always to be close, to be able to pop into each others’ offices and say: “What do you think?” That would be impossible if one or two of us were based in London or wherever.
The style is informal enough that people can just walk into your office?
Always, no problem – unless I am in the middle of an interview with Euromoneyor something.
We have some non-Dutch at the second level, senior EVPs, but not yet at the managing board level. But it will come.
Other European banks – SBC, Deutsche, BZW – have basically introduced American investment banking culture. Why did you chose to stick to the Dutch way?
No, not just Dutch, but rather Anglo-Dutch. We have quite a few British people involved at the top of investment banking – and also a very good Swede, Icke Hamilton, who was running Alfred Berg. He’s now in London. So we have at least three nationalities at the top of investment banking. I really can’t explain why, but the Dutch seem to be rather good at banking. But I would like to have more non-Dutch, no doubt.
We have some very good Dutch people too, so why appoint someone from outside if we already have someone good working here. About 95 out of 100 promotions are internal. Almost everyone at a high level in the bank has been here for ages. The average board member has been at the bank for 15 years. I’ve been here 33 years. We all still feel fresh and dynamic.
We’re also very keen on management development for our staff. If we have a promising young guy, we like to move him around. But we do this in a very consistent and structured way. We keep long lists of promising people – we call them the “young potentials”. We move them around within the bank. We spend a lot of time at board meetings discussing this. And when I’m abroad, I always try to spend half an hour or so with one of the young potentials in our local office.
I hear you get them to come to the airport to meet you.
That’s one way of doing it. I use all sorts of lost half-hours that way. I get the young guy to come and see me, or we’ll have a drink together. That helps me too. I hear a lot. I come back to Amsterdam and say to Michael Drabbe, my colleague in charge of international: “So-and-so is a wonderful guy, but that other one you put on the list, I have my doubts about him”. Making sure good people are promoted is crucial.
What’s your role as chairman?
My main concerns are, one, making sure the structure of the bank matches current circumstances, and that key positions are filled with top-quality people. And, two, making sure the people in the bank feel happy – making the atmosphere a positive and stimulating one.
With such a diverse bank, it must be hard to communicate to all those people what you’re trying to achieve.
We devote a lot of time, effort and money to that. Like my colleagues I myself travel a lot, both to branches in Holland and to foreign offices. I tell the story, speak about values. I’m in Stockholm next week just for this. I will talk to the top people, to get them to feel they’re part of the organization. That sort of thing gets across the message. You always have to work on it.
What is the purpose of your travelling?
Mainly to inform myself and to try to help Michael Drabbe sell the products of the bank.
A couple of examples. I went to Singapore in June to open the new regional headquarters. We used to be in five buildings in Singapore. Now we’re in just one: ABN Amro House in central Singapore. I wanted to show my support for Asia 2000 strategy. I did this by hosting a reception and lunches with customers. I wanted to show we consider the Asia/Pacific region very important.
A day later I went to Jakarta. I met a very high-ranking government official. We want to do several things in Indonesia and, in that country, you’d better have the government’s support rather than its blocking. I also saw the two largest Indonesian industrial groups which are customers of the bank. And, of course, I spent some time in our branch. In the space of 24 hours, I saw the government, our two most important customers, and our staff.
Another example. I went to Beirut in May. We were the only foreign bank that stayed open throughout the civil war. In 1986 I promised the man who ran our Beirut operation during the war, Elie Nahas, that when the war ended we’d build a new head office in Beirut and I’d go there personally to open it. We also arranged for him to receive a decoration from the Queen of the Netherlands because he’d served as honorary Dutch consul-general in Lebanon during the war too. We had an enormous reception – I’ve never seen such a big one – with six ministers and 1,400 people. In front of all his customers, the ambassador gave him his decoration. In just one day, I also met the president, the prime minister, the central bank governor and the minister of finance. They apparently all wanted to see the chairman of the bank which had been courageous enough to stay open during the war. It helped us fantastically though.
How many countries do you get to in a year?
Between 10 and 20 but not so many as some of my colleagues.
You try to get round to every country in the network over four or five years?
No, unfortunately I focus on the more important ones, or where we have a new strategy or where we’re trying to win a new licence.
Do you still do client work?
Yes, but less than I used to. Yesterday I was with one of our largest Dutch customers.
As chairman, what can you add?
I meet customers mainly to support our people working on a particular deal. It shows the customer that the managing board recognizes the importance of the relationship. At least that’s the way it works in Europe and other OECD countries. But in Latin America or Asia it’s different. There you really talk about business and about deals. They love that. When I visited those two large companies in Indonesia, for instance, I was there for two hours and we had lunch. It takes a lot of time. It’s not as efficient as in the US or the Netherlands, where half an hour is enough. In Asia you have to take your time; you go through the whole relationship. You score by doing that.
Do you handle relations with the Dutch government?
Yes, but I don’t devote much of my time to it. The current government is rather pragmatic and pro-business. I like to give my input if asked. From time to time I make suggestions about export promotion or whatever. The government listens to opinions from the corporate world and from bankers. I have a rather regular dialogue with the minister of finance. The central bank is also very open and pragmatic.
What worries you most in this job – risk?
Risk is, indeed, what can ruin the performance of your bank overnight. Bad decisions or appointments show up only after a time. It’s a terrible feeling when you have a fraud, or when a big position in the markets goes wrong. Those things can happen. So far, it’s gone well, although last year we did have a big fraud case. With 70,000 employees, all dealing with money, the risk that something will go wrong is far bigger than for an industrial company. The risks in a bank are always bigger. That should worry any chairman.
Do you feel frustrated that banking has become so complicated? As chairman, there’s no way you can know, for example, whether the software your options traders are using is accurate?
You’re right. If the head of trading ever showed me his computer sheets and told me our position is perfect, I wouldn’t immediately see if there is a hole somewhere. That’s why it’s essential that the organizational structure is right and that key positions are filled with top-quality people. And I check that constantly by meeting them, by talking to them.
What gives you most satisfaction?
Seeing team spirit at the bank. Seeing people excited. Yesterday, for instance, I had six people round this table in my office. They were excited about a break-through in a transaction, where they’re going to get the mandate. Five countries were involved – it’s a large bond issue plus a structured financing. There was fantastic excitement round the table. That’s what I love to see: the chemistry of people working together.
