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SCENARIOS-What happens to ABN after Deutsche Bank deal fails?

Published 09/18/2009, 04:12 AM
Updated 09/18/2009, 04:19 AM
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By Ben Berkowitz

AMSTERDAM, Sept 18 (Reuters) - The Dutch government's plan for the future of ABN AMRO is in doubt after Deutsche Bank ended talks to buy a bundle of assets from the nationalised bank in a deal ordered by the European Commission.

The Dutch government nationalised Fortis's local operations in October, taking control of two banks -- ABN and Fortis Bank Nederland (FBN). It ultimately wants to merge ABN and FBN onto one bank, then sell it to the public in 2011 or later.

However, the European Union has said the merger will only be allowed after the sale of ABN AMRO's commercial bank HBU, 13 advisory branches and two corporate client units.

With the collapse of the Deutsche Bank deal, struck by Fortis in July 2008, before the banks were nationalised, here are some of the options open to the Dutch government:

SELL OTHER ASSETS

Dutch Finance Minister Wouter Bos told state broadcaster NOS on Thursday night that the government could look to sell other assets to other buyers to satisfy EU competition requirements.

ABN had already tried to get out of the Deutsche Bank deal after nationalisation as it would have led to more than 300 million euros in losses and stripped it of attractive assets, including commercial bank HBU.

The Dutch central bank had also previously halted the deal.

Analysts say the economic situation has changed since the deal with Deutsche Bank was mooted and it may now be easier to sell parts of Fortis rather than ABN.

"The situation completely changed," said Paul Beijsens, analyst at Theodoor Gilissen.

"First Fortis wanted to sell, then Fortis Nederland became part of the state and they thought it would be much easier to sell parts of Fortis."

GET THE REMEDY LIFTED

The state could potentially consider asking the EU to entirely lift the asset sale precondition to the merger.

The EU cleared the joint RBS-Fortis-Santander purchase of ABN AMRO in 2007, but said the Fortis-ABN combination in the Netherlands would concentrate too much market share among small and medium enterprises. It ordered the asset sale to remedy the competition concerns.

But the economic situation has changed substantially in the last two years and the Dutch government could argue that a combined entity would no longer be dominant.

The EU, however, does not appear inclined to give leeway to state-aided banks.

The European Commission is threatening to break up Britain's Lloyds Banking Group and force asset sales as well as limiting dominant market positions at Royal Bank of Scotland and other European lenders who took state aid.

Dutch bancassurer ING, which took 10 billion euros in state aid last year, now faces an EU review of its separate loan guarantee deal with the Dutch state.

DON'T MERGE THE BANKS

Perhaps the most radical option of all would be for the government to abandon the merger of ABN and Fortis Bank Nederland and leave them as separate entities.

ABN AMRO is already expected to operate as a standalone bank for at least the first half of 2010 while Fortis Bank Nederland works on some legacy separation issues from its former parent.

It is not clear how the government would seek to recoup the 16.8 billion euros it paid to buy Fortis if it abandoned the merger. But it may have little choice if it fails to sell the necessary assets or persuade the EU to lift its preconditions.

Analysts said the government was reluctant to sell the assets anyway, so this option may prove appealing.

"For the Dutch state the sale is very unattractive, as it might force the state to inject further capital into ABN AMRO/Fortis," Evolution Securities analyst Jaap Meijer said in a note late on Thursday.

"The Dutch state is merely protecting Dutch tax payers here, so is unlikely to give in easily, in our view."

(Editing by Lin Noueihed)

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