ABN Amro, Rebuffed by ING, Seeks Large Partner to Maintain Growth

The banking concern needs to penetrate other markets, and is looking at other banks to help it achieve that goal.
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AMSTERDAM -- In the relatively small Dutch banking community, big secrets are hard to keep.

When

ABN Amro

CEO Jan Kalff, who announced last week that he would resign in 2000, approached competitor

ING

(ING) - Get Report

with a merger proposal, the word was on the street before he could even mutter the buzzword "synergy." It was a painful moment for the most senior of Dutch bankers, especially after ING refused publicly.

Officially, the banking-insurance group feared negotiations between the Nos. 1 and 2 of the Dutch financial industry would arouse the concerns of

European Union

trustbusters in Brussels. But undoubtedly ING was not all that keen on being swallowed by its bigger competitor.

The failed approach signals very clearly that ABN Amro is looking for a partner. Since ABN and Amro banks merged in 1991, the company has acquired dozens of smaller institutions around the world. Among the Amsterdam-based bank's acquisitions: U.K. investment bank

Hoare Govett

, Sweden broker

Alfred Berg

, America's

Chicago Corp.

and Hungary's

Magyar Hitel Bank

. Although some of these purchases were high profile, none added enough critical mass to propel ABN Amro into the big leagues.

While acquisitions haven't been enough, organic growth isn't an option either. ABN Amro already holds a dominant position in the Dutch commercial, retail and investment banking markets. To expand further in any of these fields, it needs to penetrate other markets, preferably in Europe. Past attempts to do so have failed miserably. In Germany and Belgium, acquisitions of first-class local banks fizzled and ABN Amro had to step out of the fray more than once with a bloodied nose.

Last year, when it tried to buy Belgium's

Generale Bank

, for instance, the prize was snatched away at the last moment by Dutch competitor

Fortis

.

It's not surprising, therefore, that Kalff, who is in his early 60s, is scrambling to find another partner before his retirement next spring. (He will be succeeded by board member Rijkman Groenink.)

What is surprising is that he chose ING in the first place. No two companies could be more different than this pair of banks. Distinguishing the pin-striped nose-in-the-air ABN Amro bankers from their more relaxed and casually attired ING counterparts on Amsterdam's subway is easy. Moreover, an independent ING is a prerequisite for ABN Amro's international success, because the two banks' stern but healthy competition keeps each other sharp.

So if not ING, with whom could ABN Amro merge? Analysts say

Deutsche Bank

would be an ideal partner. The Germans are next-door neighbors, offer a global presence, a comparable corporate culture and a strong partnership in the eurozone. And, like ABN Amro, they have reached the limits of their own organic growth.

There is, however, a large cultural hurdle. The Germans are, well, German, and Dutch businesses have historically resisted being gobbled up by their huge neighbors. There's isn't a single company currently listed on the Amsterdam stock exchange that is the result of a German-Dutch merger, a remarkable fact in a country rich in successful cross-border mergers. Take

Fortis

, for instance, the recent result of a Belgian-Dutch merger. Or

Royal Dutch Shell

(RD)

, which is Anglo-Dutch, as is

Reed Elsevier

and

ING Baring

.

ABN Amro is no exception. A merger would mean moving the center of power of Holland's biggest financial institution to Frankfurt, something that would go down badly in Amsterdam.

An Italian bank would be a more likely candidate. The top Italian banks are facing the same problems as ABN Amro: They have outgrown their home market and do not want to become a small part of a giant international financial consortium. They would also face a struggle in Brussels and Rome if they tried to merge with banks in their own country.

Banco San Paolo-Imi

and

Banca di Roma

, Italy's Nos. 1 and 4, were forbidden from merging earlier this year by the Italian central bank. ABN Amro has eyed Banca di Roma ever since its engagement with San Paolo-Imi was terminated. Over the past year the Dutch bank has slowly increased its share in the Roman institution to 10%.

Furthermore, ABN Amro has also taken a 4.9% share in

Banca Antoniana Popolare Veneta

. After the ING misstep, that holding could morph into more serious cooperation with an Italian bank. In other industries, Dutch-Italian cooperation has blossomed. Dutch flag carrier

KLM

(KLM)

and Italian airline

Alitalia

, for example, have shown such alliances can work despite cultural differences.

Perhaps Dutch bankers, anxious to secure a deal with their Italian counterparts, will be racking up frequent-flyer miles on the partners soon.

Philip Droege is a freelance writer based in Amsterdam. At the time of publication, he had no positions in any of the companies mentioned in this story.