BANK LENDING PROJECT

ON

“MERGER AND ACQUISITION OF BANKS”

SUBMITTED TO: SUBMITTED BY:

Mr. VIVEK SEXENA ANKITA JAIN

JAYA SARPAL

RACHNA SHARMA

SHWETA RAI

CONTENTS:
 1. INTRODUCTION
 Merger and Acquisition in Banks.
 Three cases prior to 2000.

2. Case 1
 State Bank of Saurashtra Merger With State Bank of India

3. Case 2
 Bank of Rajasthan Merger with ICICI

4. Case 3 –
 ABN Ambro Bank Merger with Royal Bank of Scotland

MERGER AND ACQUISITION OF BANKS

Bank mergers and acquisitions are actually quite common, especially during a financial crisis
such as the one recently experienced by the world.  When handled properly, this type of action
within the banking industry can be beneficial but because this is such a serious change,
numerous factors must first be considered.  Keep in mind that bank mergers and acquisitions
are seen with both national and international institutions with the primary goal being to boost the
economy
Again, when done right, bank mergers and acquisitions can help banks grow while also reduce
expenses.  This action comes with a long list of benefits that also includes reducing
competition.  Obviously, when one bank takes over another bank, the bank being acquired is
eliminated.  One aspect of bank mergers and acquisitions different from other industries that go
this route is that a type of horizontal merger is created.  The reason is that the entities being
merged are the same type of business or involved with the same type of business activities.
In other words, when you see many companies going through an acquisition or merger, it is
because the primary company is looking to add products or services not currently offered to
customers.  For instance, if a telecommunication company acquires another
telecommunication company, some type of technology or system is being acquired.  However,
when looking at bank mergers and acquisitions, both the primary bank and the
secondary bank offer the same products and or services.  Therefore, instead of the marriage
being to add on, it is more to boost economic value.
With the completion of bank mergers and acquisitions, the greatest value typically seen is a
greater number of locations, giving the primary bank a stronger presence.  However, this type of
marriage also results in an increased customer base for the primary bank.  Today, both private
and government banks are following policies for this type of action, realizing that a number of
benefits exist.  In fact, global and multinational banks are now seeing the value that comes
from bank mergers and acquisitions, allowing operations to be extended.

CASE – 1.
STATE BANK OF SAURASHTRA MERGER WITH STATE BANK OF INDIA

State Bank of India:

INTRODUCTION:

The origin of the State Bank of India goes back to the first decade of the nineteenth century with
the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the
bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A
unique institution, it was the first joint-stock bank of British India sponsored by the Government
of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed
the Bank of Bengal. These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.

Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European commerce
and were not imposed from outside in an arbitrary manner to modernize India's economy. Their
evolution was, however, shaped by ideas culled from similar developments in Europe and
England, and was influenced by changes occurring in the structure of both the local trading
environment and those in the relations of the Indian economy to the economy of Europe and the
global economic framework.

State Bank of Saurashtra:

INTRODUCTION:

State Bank of Saurashtra was a government-owned bank in India. It was one of the seven
Associate Banks of the State Bank of India, with which it merged on 13 August 2008. At the time
of the merger, the Bank had a network of 423 branches spread over 15 states and the Union
Territory of Daman and Diu. Prior to 1948, the region of Saurashtra, which at present forms a
part of Gujarat State, comprised many small, medium and large princely states. Bhavnagar,
Rajkot and Porbandar, which were among the larger states, and two smaller states, Palitana
and Vadia, had established their own Darbar (meaning Palace) Banks, the oldest of which was
Bhavnagar Darbar Bank, established in 1902. These banks mainly catered to the needs of the
governments of their respective princely states, and acted as depositories for local savings.
After the establishment of Saurashtra state in 1948, there was a parallel amalgamation of these
banks. The Bhavnagar Darbar Bank became the State Bank of Saurashtra, under the
Saurashtra State Bank (Amalgamation) Ordinance, 1950, and the four Darbar Banks - Rajkot
State Bank, Porbandar State Bank, Palitana Darbar Bank and Vadia State Bank - were merged
with it with effect from 1 July, 1950 as its branches. At the close of 1950 the Bank had only 9
branches and deposits of Rs.7 crores. In 1960, following the formation of a separate Gujarat
State, the Bank's main area of operation - Saurashtra - became a part of Gujarat. At the same
time, the State Bank of India took over the State Bank of Saurashtra, along with the other major
state-owned banks under the State Bank of India (Subsidiary Banks) Act, 1959. By this time, the
number of branches had increased to 24, with aggregate deposits of Rs.13.39 crores, total
advances of Rs.7.93 crores, and an investment portfolio of Rs.8.04 crores. The paid up capital
and reserves were Rs.1.51 crores. The Bank also had 866 employees.

The bank's first chairman was Jagubhai S.Parikh, and he served until 1960. He was the Deputy
Chief Minister of Bhavnagar State Cabinet and was the first Finance Minister in the post-
Independence Saurashtra Cabinet.

ANALYSIS:
Merger of State bank of Saurashtra with State bank of India:

Central Board of State Bank of India on August 25 2007, gave it's go ahead to the merger of
State Bank of Saurashtra with itself. Merger is subject to approval of the government and
Reserve Bank in accordance with State Bank of India Act, 1955.. In a communication to the
Bombay Stock Exchange, SBI said its central board on August 25 approved the merger, subject
to approval of the government and Reserve Bank in accordance with State Bank of India Act,
1955.
"This is the beginning of whole group's restructuring. SBS is the smallest of the seven
associates and based on the experience we will look at other banks," said SBI Managing
Director T S Bhattacharya. SBS has 460 branches and the merger would help eliminate
duplication of branches in the same area. Its net profit rose 45 per cent to Rs 87.4 crore in
2006-07. The bank has paid-up equity capital of Rs 314 crore. The total deposits stood at Rs
15,804 crore while total advances were at Rs 11,081 crore.

Reasons for merger:

 The deal was thought of because it will enable state bank of saurashtra to scale up in terms of
footprint, manpower and resources... face competition arising from globalisation... augmenting
efficiency and enabling better management of risks,". The government on 24th July,2008
approved the merger of State Bank of Saurashtra with its parent State Bank of India to create a
bigger banking entity in terms of size to take on competition ushered in by globalisation.

The Boards of SBI and State Bank of Saurashtra had already given their approval for the
proposed merger in August last year. The merger would be the first of its kind among public
sector banks and would kick start the process for merging six other associate banks with SBI.
State Bank of Saurashtra is a 100 per cent subsidiary of SBI. Since State Bank of Saurashtra is
a 100 percent subsidiary of SBI, the merger is only a technical process.

ADVANTAGES OF THE DEAL:

The merger would help SBI consolidate its position as the country's biggest bank and widen the gap with
nearest rival ICICI Bank. With 9,579 branches, SBI has total assets of Rs 5,66,565 crore and posted a net
profit of Rs 4,541 crore as on March 31, 2007. ICICI Bank had assets of Rs 3,44,658 crore and posted a
net profit of Rs 3,110 crore in 2006-07. SBS has 460 branches and the merger would help eliminate
duplication of branches in the same area. Its net profit rose 45 per cent to Rs 87.4 crore in 2006-07. The
bank has paid-up equity capital of Rs 314 crore. The total deposits stood at Rs 15,804 crore while total
advances were at Rs 11,081 crore. 

The merger would help SBI consolidate its position as the country's biggest bank and widen the gap with
nearest rival ICICI Bank. With 9,579 branches, SBI has total assets of Rs 5,66,565 crore and posted a net
profit of Rs 4,541 crore as on March 31, 2007. ICICI Bank had assets of Rs 3,44,658 crore and posted a
net profit of Rs 3,110 crore in 2006-07. 
The merger comes at time when the bank has decided to go in for big expansion. The bank is also
looking at freeing up capital by setting up a holding company for its life insurance and asset management
businesses. SBI’s move to merge its arms could pave the way for further consolidation in the industry,
which faces imminent competition from foreign banks from 2009. 

.DISADVANTAGES OF THE DEAL:

State Bank of Saurashtra is a very small bank with a business of around Rs25,000 crore while State Bank
of India’s business is more than Rs8 trillion. Saurashtra has a different work culture and integration with
State Bank will be very difficult.Ultimately the management may merge all seven SBI associate banks.
They have regional character and cater to a particular clientele.

The proposed merger would not bring any benefits to SBI and the integration of the two lenders would be
difficult given the differences in their size and work culture. For Bank of Saurashtra employees, however,
the merger means pension benefits they now lack.

IMPACT:

State Bank of Saurashtra is a relatively small bank with assets equivalent to 3% of that of SBI
and its merger would not affect SBI's financials in any significant way. The decision to merge
could, however, be extended to the other six subsidiary banks in due course, subject to
regulatory and government approvals. Together, the assets and net income of the seven
subsidiary banks were equivalent to 42% and 45%, respectively, of that of SBI's standalone
numbers at financial year ended 31 March 2007. They share a common logo and technology
platform with SBI, and enjoy strong regional franchises from the times when they were bankers
to the 'princely states' in India before being nationalized in 1959. The banks are well managed
with key capital and asset quality ratios comparable with that of SBI. The merger is therefore
part of the expected consolidation in the Indian banking system that would increasingly be
driven by the need for capital and reinforce competitiveness in an increasingly competitive
market. 

SBI's ratings continue to reflect its steady performance, together with its quasi-sovereign risk
status as India's largest bank with huge systemic importance. The reported NPL ratios improved
significantly during this decade (as did that of the Indian banking system) during a benign credit
period. While they could now rise if higher interest rates affect the borrower's repayment
capacity, any spectacular upsurge is unlikely given SBI's improving risk management systems
and the fairly low levels of unsecured consumer lending.

"The pay and allowances and service conditions of the employees of SBS will not be altered to
their disadvantage," Minister of State for Finance Namo Narain Meena said as the House
approved the two bills to given effect to the merger that took place last year.

The merger would rather lead to more ATMs and more branches, he said adding services would
improve.

SYNERGY:

The synergy or the combined impact of deal includes all the aspects which were influenced after
the deal. The market coverage if taken into consideration of both the banks then we can see
that the deal has been beneficial to both the banks whether it is SBI or State Bank of
Saurashtra. The global reach of the individual banks when combined can tap the untapped
market and can gain successfully. The effectiveness of the work culture and the efficiency of the
employees working affect the accounts in a positive way. SBS reported a net profit of Rs 87.4
crore in 2006-07, a jump of 45.4 per cent from Rs 60.1 crore in the previous year. The bank has
paid-up equity capital of Rs 314 crore.

SBS’ total deposits stood at Rs 15,804 crore while total advances were at Rs 11,081 crore. The
capital adequacy stood at 12.78 per cent as on March 31, 2007. According to analysts, the
authorised capital of the associate banks is small compared with their reserves, balance sheet
size and profits.

CASE- 2

Bank of Rajasthan Merger with ICICI Bank

INTRODUCTION:

Bank of Rajasthan:

It was set up at Udaipur in 1943 with an initial capital of Rs.10.00 lacs. An eminent Industrialist
Late Seth Shri Govind Ram Seksaria was the founder Chairman. It was classified as the
Scheduled Bank in 1948. The Bank also established a rural (Gramin) bank Mewar Anchlik
Gramin Bank in Udaipur District in Rajasthan on 26th January, 1983.The bank's central office is
located at Jaipur, while registered office is in Udaipur. Presently the bank has 463 branches.
ICICI:
Industrial Credit and Investment Corporation of India, is a major banking and financial services
organization in India. It is the second largest bank in India and the largest private sector bank in
India by market capitalization. The bank also has a network of 2,016 branches (as on 31 March
2010) and about 5,219 ATMs in India and presence in 18 countries, as well as some 24 million
customers (at the end of July 2007). ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery channels and
specialization subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management. (These data are dynamic.) ICICI Bank is
also the largest issuer of credit cards in India. ICICI Bank's shares are listed on the stock
exchanges at BSE, NSE, Kolkata and Vadodara (formerly Baroda) ; its ADRstrade on the New
York Stock Exchange (NYSE). The Bank is expanding in overseas markets and has the largest
international balance sheet among Indian banks. ICICI Bank now has wholly owned
subsidiaries, branches and representatives offices in 19 countries, including an offshore unit in
Mumbai.

ANALYSIS:

Merger of bank of Rajasthan with ICICI bank:

Bank of Rajasthan, one of the oldest private sector banks in the country, on May 18 announced
that it would merge with the largest private sector bank, ICICI Bank. The board of ICICI Bank
also agreed to give in-principle approval for merger of Bank of Rajasthan with it ³subject to due
diligence and valuation by an independent valuer jointly appointed by both banks. Bank of
Rajasthan is a listed bank with its corporate office in Mumbai and registered office at Udaipur in
Rajasthan. As on March 31, 2009, Bank of Rajasthan had 463 branches and 111 ATMs, total
assets of Rs.17,224 crore, deposits of Rs.15,187 crore and advances of Rs.7,781 crore. It made
a net profit of Rs.118 crore in the year ended March 31, 2009, and a net loss of Rs.10 crore in
the nine months ended December 31, 2009. ICICI Bank has a network of 2,009 branches and
5,219 ATMs.
ICICI Bank further stated that it has entered into an agreement with certain shareholders of Bankof
Rajasthan agreeing to effect the amalgamation of Bank of Rajasthan with ICICI Bank with ashare
exchange ratio of 25 shares of ICICI Bank for 118 shares of Bank of Rajasthan. ICICI Bank said that it
willing to pay more than BoR present market valuation. But the deal fell through as ICICI was unwilling to
fork out the money Mr Tayal had asked for. On 13th Aug the country's oldest private sector bank, Bank of
Rajasthan Ltd, had become part of
ICICI bank Ltd. Accordingly, all Bank of Rajasthan branches have started functioning as ICICI
Bank branches.The swap ratio implies a price of Rs188/share for BoR, which is a at a 90% premium to
the current market price. It would typically take a year for ICICI Bank to set upa similar network to that of
BoR and another two years to break-even. Key downside risk to thedeal is potentially higher non
performing loans (NPL).

ADVANTAGES OF THE DEAL:

1.The proposed amalgamation would substantially enhance ICICI Bank's branch network already the
largest among Indian private sector bank It would combine Bank of Rajasthan's branch franchise with
ICICI Bank's strong capital Base.
2.It offers a strategic fit, as it adds to our network in north and western India. It saves us
about three years time to market. In the normal course, it takes about a year to set up 500 branches and
then three years for the branches to come up to the kind of deposit levels.
3.The Bank of Rajasthan is the building block but it gives synergies in the form of a larger customer base.
It gives the ability to offer other products to customer base such as different loan products from ICICI
Bank and other products. ICICI have a high capital adequacy ratio, so the customer base that they are
acquiring will help them in lending.
4.ICICI Bank is facing stiff competition from HDFC Bank and also the resurging Axis Bank. To remain as
the top private player, it needs to grow bigger and what better way to grow the path of acquisition.
5.The customers of BOR may now enjoy would class personal banking experience, but of course, at a
cost. While µpersonal touch of BOR may be missing, one can then feel professional touch in banking
relationships. ICICI lays emphasis on personal banking relationships where as customer loyalty has been
a USP of Bank of Rajasthan.
6.The fixed deposits may also witness some shift. Undoubtedly, customers will have rich choice
of innovative as well as customized products and corporate customers shall immensely gain out
of such products adding to their efficient cash management. BOR has considerable business of
state government corporations and bodies (eg, roadways, JDA, University, RIICO etc). While
ICICI would benefit out of this, a question may arise in these corporations to continue banking
relations with a new generation private bank or switch over to any other public sector bank.
DISADVANTAGES OF THE DEAL:

ICICI Bank has valued BOR at a whopping 3000 crores which is much more than its market
capitalization. It values the acquired bank at 2.9 times the book value in
comparison to 1.89 times, which is the Indian Banking average. At a time, where the picture of global
financial world again seems to be shallow with Greece crisis, this expensive deal may decrease EPS of
ICICI Bank.

The market gave its judgment on the day of announcement when the shares of ICICI bank were down
by over 7% and BoR shares hit an upper circuit of 20%. The
shareholders of BOR are to reap benefits as their per share value has been valued at Rs.188.42 as
compared to Rs. 80 on the end of 17th May, the day previous to the day of announcement.

BOR, though being a private bank, has been managed like a public sector bank, where the jobs were
safe and the productivity per employee was low.

ICICI Bank may probably pay them higher but again the expectations to perform will go up. Even, the
average age of employees in BOR is around 40 as compared to young age group of ICICI Bank. BoR
had a profit per employee of Rs Rs 2.89 lakh for the financial year up to March 31, 2009, compared to
Rs 11 lakh for ICICI Bank.

The staff union at BOR is opposing the merger and has even threatened to take legal action against the
promoters, if the merger goes ahead. The most challenging task before BOR employees would be to
adjust to new target oriented professional work culture where performance is rewarded and every team
member has to contribute in tangible terms to organizational growth. Those who are able to change
would survive and also rediscover their talent and those who won would find such merger really difficult
to cope with. The writing is on the wall and this change (merger) seems to be inevitable. The softer part
of the merger is not yet out but it would be desirable for ICICI Bank to value the BOR brand as well as
human resource when the final valuation exercise is done and finally approved by the shareholders of
both banks.

Tayal Family had been the promoters of Bank of Rajasthan holding 28.6 percent stake in the bank. But
according to a SEBI order, they, in coalition with related parties, set to hold 55% shares in the company.
Tayal family has been barred by SEBI access capital markets and deal in securities.

The SEBI investigation is in progress and thus the possibility of a scam in the said bank cannot be
ignored.

A penalty of Rs. 25 Lakhs was imposed on them for violating RBI norms of illegal acquisition of
immovable property, non compliance with Know Your Customer guidelines, deletion of certain records
and data in Banks IT system.

Thus, in a nut shell, it can be said that all is not well with the bank and it was highly mismanaged. After the
merger, ICICI Bank may have to bear the brunt of many such things.

Bank of Rajasthan’S profit has increased over the years. But still, it has a low EPS and net profit margin.
The profit till nine months ended in a negative of Rs. 44 corers for nine months ended December 2009
against a profit of Rs. 117 crores in the year ended March 2009.

Thus, the above indicates the pros and cons of this merger but apparently it seems that the arguments
against the merger are higher. We have seen certain expensive deals in the recent past which has
affected the acquirer in a pretty big way. Will this merger also go down as one of the worst deals or will
ICICI bank prove analysts and critiques wrong needs to be seen?

IMPACT:

Deal envisages one ICICI Bank share for every 4.72 of BoR’s. Bank of Rajasthan (BoR) is set to merge
with ICICI Bank, the country’s largest private sector lender.
Under the deal, ICICI Bank would give 25 shares for 118 shares (1:4.72) of BoR. The swap indicates that
ICICI bank is paying a 90 per cent premium over BOR stock’s closing price of Rs 99.50 on the Bombay
Stock Exchange on Tuesday. The BOR stock touched a 52-week high on Tuesday, soaring 20 per cent.
ICICI Bank’s shares closed 1.45 per cent lower at Rs 889.35 on a day when the benchmark Sensex rose
by 0.24 per cent. “The valuation implied by the share exchange ratio is in line with the market
capitalisation per branch of old private sector banks in India,” ICICI Bank said in the statement. “It also
compares favourably with relevant precedent transactions. The final determination of the share exchange
ratio is subject to due diligence, independent valuation and approvals.” Due diligence and valuation by an
independent valuer will be undertaken now.

BoR Managing Director G Padmanabhan said after the board meeting that Haribhakti & Co has been
appointed jointly by both the banks to assess the valuation.The banks would seek regulatory approval
from the Securities and Exchange Board of India (Sebi) as well as the Reserve Bank of India at an
appropriate time, he said, adding that the “swap ratio was not discussed at the board meeting”. The move
to merge BoR with ICICI Bank comes in the wake of regulatory pressure mounted on the Tayals, who
according to Sebi, hold nearly 55 per cent stake in the bank. At the end of 2009, the promoters held a
28.6 per cent stake in the bank, according to stock exchange data. Nearly 100 entities related to the
Tayals were barred from dealing in securities.

SYNERGY:

The concept of ‘synergies', the driving force behind most mergers and acquisitions. Put simply,
synergies refer to advantages from a merger or acquisition which places the combined entity in
a better position than the entities considered individually. Synergies may flow from a variety of
reasons such as cost optimization (due to economies of scale, better bargaining power with
vendors, eliminating overlaps, and so on), revenue enhancement (access to new markets and
geographies; for instance, ICICI Bank gets readymade access to Bank of Rajasthan's wide
branch network in North and West India), technological leverage, or forward or backward
integration for the companies that are combining.

The entity which pays the premium does so in the belief that future benefits (synergies) accruing
from the business combination will exceed the premium currently being paid. This bonanza
(premium) for existing shareholders in the merged or acquired entity tends to reflect in the
market price of its shares post-announcement of the deal. All 463 branches of Bank of
Rajasthan will function as ICICI Bank's branches from tomorrow with the Reserve Bank giving
its approval to the merger between the two lenders. The integration of BoR would help ICICI
Bank increase its branch network by 25 per cent to about 2,500 across the country. It will give
greater visibility to ICICI Bank in western and northern parts of the country. ICICI Bank has
about 2,000 branches while BoR has 463 spread across the country. With the merger, the
balance sheet of ICICI Bank would cross Rs four lakh crore. BoR has a total business of over
Rs 23,000 crore, against nearly Rs 3,84,000 crore of ICICI Bank.

CASE – 3
ABN AMBRO BANK MERGER WITH ROYAL BANK OF SCOTLAND

INTRODUCTION:
ABN AMBRO BANK

ABN AMRO Bank N.V. is a Dutch bank with headquarters in Amsterdam, the Netherlands. It

was established, in its current form, in 2009 following the acquisition and break up of ABN

AMRO Group by a banking consortium consisting of Royal Bank of Scotland

Group, Santander and Fortis. Following the collapse of Fortis, the acquirer of the Dutch

business, it was part nationalized by the Dutch Government along with Fortis Bank Nederland.

In 2007 the bank was acquired, in what was at that time the biggest bank takeover in history, by

a consortium made up of the Royal Bank of Scotland Group, Fortis bank and Banco Santander,

of which the first two got into serious trouble as a result of the takeover. The large amount of

debt that had been created to fund the takeover had depleted the banks reserves just at the

time the Financial crisis of 2007–2010 started. As a result the Dutch government took over and

nationalized the Dutch parts of the operations which had primarily been allocated to Fortis to

stop it failing. The UK government took effective control over the divisions allocated to RBS due

to its financial bail-out of the Scottish bank. The remaining parts of ABN AMRO held by the

consortiums RFS Holdings B.V., notably the overseas businesses, were merged with RBS,

Santander, sold off or shut down.

ROYAL BANK OF SCOTLAND

The Royal Bank of Scotland Group (LSE: RBS) is a British state owned banking and

insurance holding company in which HM Treasury holds an 84% controlling share (economic

interest; actual voting rights will not rise above 75% in order to retain stock listing). This stake is

held and managed through UK Financial Investments Limited. The group is based in Edinburgh,

Scotland, and is the world's largest company by assets. The RBS Group operates a wide variety

of banking brands offering personal and business banking, private

banking, insurance and corporate finance throughout its operations located in Europe, North

America and Asia. In the UK and Republic of Ireland, the main subsidiary companies are: The

Royal Bank of Scotland; National Westminster Bank; Ulster Bank; Drummonds; and Coutts &

Co. In the United States, it owns Citizens Financial Group, the 8th largest bank in the country.

From 2004 to 2009 it was the second largest shareholder in the Bank of China, itself the world's
fifth largest bank by market capitalization in February 2008. Insurance companies

include Churchill Insurance, Direct Line, Privilege, and NIG.

ANALYSIS

Merger of ABN Ambro Bank with Royal Bank of Scotland:

On November 2, 2007, a consortium led by Royal Bank of Scotland Group PLC, and including
Fortis Group NV of Belgium and Santander Central Hispano SA of Spain, substantially
completed its acquisition of Dutch bank ABN Amro, the largest financial services merger in
history. The offer had been declared wholly unconditional on October 10 and, following a
subsequent offering period which ended October 31, shares representing in aggregate
approximately 98.8% of ABN Amro voting rights had been tendered to the offer.

RFS Holdings intends to acquire 100% of ABN AMRO's issued and outstanding share capital in
the shortest possible time through the appropriate legal process. Fasken Martineau provided
Canadian bank and securities regulatory and antitrust legal advice to the consortium with a
team which includes among others: Robert McDowell, Robert Elliott and Kathleen Yoa (financial
services); Garth Foster, Bruce Blain, Karoline Kralka and Catherine Fraser (securities and
M&A); and Doug New, Huy Do and Mark Magro (antitrust). ABN AMRO's acquisition coupled
with sub-prime crisis also led Fortis into trouble. Fortis customers lost confidence in the bank
resulting in huge withdrawals. As Fortis was one of the biggest banks in the Netherlands,
Belgium, and Luxemburg, those governments came to its rescue from bankruptcy. Each
government contributed certain amounts to Fortis in return for stakes in its operations in their
respective countries. Later, majority stakes in Belgium and Luxemburg operations were sold to
TheFrenchbankinggiant,BNPParibas.
Banco Santander was the only bank in the consortium which did not incur any losses after ABN
AMRO's acquisition. The bank sold some of its acquired operations within few days after
announcing the acquisition which brought down its acquisition cost significantly. As Spanish
banking regulator did not allow Spanish banks to indulge in risky banking practices, Banco
Santander's exposure to the sub-prime related assets was lower which saved it from incurring
any losses.

IMPACT:
[

With the help of financial data available in audited statements of ABN AMRO and RBS Four
years accounting ratios have been computed as per formulae before merger (ABN AMRO) and
after merger (RBS). These accounting ratios including liquidity ratios, profitability ratios, return
on investment ratios, solvency ratios and market stock ratios have been computed. The
averages of these ratios are shown in below Table. The below given tables are the comparison
of ratios before and after merger deal to show the post merger financial health of the bank.

LIQUIDITY RATIO COMPARISON

The above table related to the averages of the liquidity ratios and there comparison between the
averages before merger and averages after merger in order to show the average result with
regards to the liquidity position of the bank. From the calculation it is clear that bank is in better
condition before merger in terms of liquidity. All the average ratios are better before the merger
of banks. So ABN AMRO status was better than RBS in terms of liquidity.

PROFITABILITY RATIO COMPARISON

After liquidity comparison the profitability ratios comparison is also an important measure of
firm’s financial position. The above table is the clear indication that the bank’s profitability is
better before merger because of the reason that out of 7 average ratios 6 are in favor of ABN
AMRO.
SOLVENCY RATIO COMPARISON

As you that firms are financed by both debt and equity. These ratios determine firm’s solvency
position. In terms of bank’s long-term debt paying ability, the status of RBS improves after
merger deal which means that bank’s long-term paying capacity improves after merger.

RETURN OF INVESTMENT RATIO

The above ratios comparison is about the average gains on total capital invested in business
and average gains on the total funds employed by the shareholders/stakeholders of the firm.
The bank gain better returns before merger deal because the returns are higher than cost of
capital. The status of ABN AMRO was better than RBS due the reason that the earnings
available to the stakeholders of the bank were higher before merger.
MARKET STOCK RATIO COMPARISON

The above table clearly indicates the averages of the market value of the stock of the bank. These ratios
help the investors in making right investment decisions. The status regarding stock market, the bank was
in better condition before merger with RBS.
ADVANTAGE:
This study is conducted to find the profitability of the RBS after merger deal. In all, 20 ratios
using financial statements have been calculated. Instead of comparing individual ratios their
averages have been compared. Out of 20 ratios, numbers of favorable ratios before and after
merger are as under
TOTAL RATIO COMPARISON

Out of 20 ratios, score for the ‘better’ ratios after merger is just 6 (i.e. 30% only). From an
investor’s point of view, the role of these accounting ratios is enough to find out the profitability
of the any firm. Recently, FAYSAL BANK has acquired 99.37 % stake in Royal Bank of Scotland
(RBS) Group's Pakistan unit for Rs. 4.298 billion (Rs. 2.50 per share) because bank was not
creating its value and continuously incur losses after merger. Although mergers play an
imperative role in boosting up the financial sector of the country. But in this case it is concluded
that the merger of RBS fails to pull up its profitability. From the ratio analysis it is proved that the
RBS merger proves to be a failure in banking history.

DISADVANTAGE:
Indeed, mergers and acquisitions seldom live up to their promise of delivering
strategic benefits, easy growth and a boost in the value of the acquirer's shares. To
be sure, some do work. According to academics, as many as 35 per cent do. But
that still means more than 60 per cent of deals fall flat chasing the elusive goal
reached by a minority."Over the three to five years after the deal on average, the
share price of the acquiring company tends to drop," said Paul Guest, a researcher
at Judge Business School, Cambridge University. There are many reasons deals fail.
Buyers can get carried away and overpay at the top of the market, shortly before a
crash, as is the case with RBS. Alternatively, even if a deal is well-priced, the
difficult part is often not so much the agreement but the integration. Buying a
company can lead to top staff leaving unless an acquirer is careful. It can also lead
to two separate businesses continuing to run in parallel, undermining cost cuts and
the spread of know-how that are part of a deal's objectives.
Scott Moeller, director of the M&A research centre at Cass business school, said:
"Most deals fail not because they are the wrong deal. The reason they fail tends to
be the integration – the way cultural differences and other such issues are handled
during the integration sometimes means they can't work together. We have, below,
tried to gather some of the ten worst such deals. The list does not include any
single deal by Marconi, which around 1999 squandered its cash on a misjudged
buying spree that led to its meltdown. Nor does it look too hard at private equity
firms, whose crop of overpriced, overleveraged transactions conducted at the
height of the credit boom in 2006 and 2007 may yet turn out to make similar top
tens a few years from now.