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Nordea’s double Dutch takeover

A second acquisition of ABN Amro might offer Scandinavia’s biggest bank more than an industrial fit

Boisterous talk of a merger between ABN Amro and Nordea could be a sign that a new wave of European bank mergers is finally coming. Cooperative shareholders of Banca Popolare di Milano and Banco Popolare have agreed to create Italy’s third biggest bank. In Germany, rumours of a tie-up between Commerzbank and Deutsche Bank still hang in the air.

Meanwhile, ABN Amro is reportedly baffled by an approach from Nordea. ABN’s biggest shareholder, the state’s Netherlands Financial Investments (NLFI) has rejected it but Nordea’s chairman Bjorn Wahlroos still insists a merger of the two would make a “fine bank” and says talks could continue in 2017.

Gerrit Zalm 160x186

Gerrit Zalm, ABN AMRO 

It is unsurprising to see the Swedes taking the offensive. Nordea has size and valuation that European rivals lack, while the Netherlands is a market perhaps most like Scandinavia, as Wahlroos has pointed out. Dutch banks have Scandinavian characteristics in the buoyancy of their mortgage market, efficiency, and digitalization. ABN Amro and Nordea dominate private banking in their home markets, where they are also strong in investment banking.

NLFI’s ultimate aim is to sell the 77% it holds in ABN Amro, even if its 2013 advice was to do an IPO (completed late last year) as there was a lack of strategic buyers. Nordea’s approach is therefore hard to ignore, even if a takeover would come as a surprise, following eight hard years of turnaround after a €30 billion bailout.

A tie-up with Nordea would be the biggest European merger since ABN Amro’s €72 billion acquisition by RBS, Fortis and Santander, which presaged its bailout. Ten years later, the same investment bankers could end up working on a very different buyout of the now much smaller bank.

Wahlroos says talks could continue after the Dutch parliamentary election in March. The timing is important as NLFI’s stake is structured to block hostile takeovers. KBW estimates Nordea would need to a make a cash offer at a 20% premium, requiring synergies at 10% of ABN Amro’s cost base. Clarity on new risk-weighting rules, which will have a big impact on ABN Amro’s mortgage book, will be crucial to the valuation.

The deal could still be politically impracticable in the Netherlands, whatever the price. ABN Amro’s chairman Gerrit Zalm told Euromoney earlier this year that big European banks had already “gone beyond economies of scale”. Zalm is due to leave next year, but as a former finance minister he speaks to the establishment mood, which in this case probably has public opinion behind it, given memories of the last takeover.

Swedish media reports that Nordea would move its headquarters to the Netherlands – perhaps allowing it to avoid Sweden’s more stringent capital requirements – bringing one possible, if perhaps unlikely, benefit. Moving the headquarters might seem quite easy for a bank that has long been a many-headed beast. On the other hand, Nordea has started to shift its pan-Scandinavian businesses from a subsidiary to a branch model.

Is the suggestion of a reverse takeover of ABN Amro just a threat to make the Swedish FSA think twice about piling too heavy capital requirements on its biggest bank? Berenberg Bank takes this cynical view. But whether or not the deal could happen, highlighting the possible downsides of stiff regulation, and hinting at ways to circumvent it, could relieve some pressure on Nordea’s shares.