29th May 2007 07:03
Royal Bank of Scotland Group PLC29 May 2007 The Royal Bank of Scotland Group plc 29 May 2007 Acquisition of Global Wholesale Businesses, LaSalle Bank and InternationalRetail Businesses of ABN AMRO for €27.2 billion (£18.5 billion) The Royal Bank of Scotland Group plc ("RBS"), Fortis and Santander (collectively"the Banks") are today confirming the terms of their proposed Offer for ABNAMRO. As a result of this proposed Offer, it is intended that RBS will acquirethe Global Wholesale Businesses (including the Netherlands but excludingBrazil), LaSalle Bank and International Retail Businesses of ABN AMRO(collectively "the ABN AMRO Businesses") for a consideration of €27.2 billion.RBS believes that this transaction will provide enhanced growth prospects andattractive financial returns. Full details of the proposed Offer are set out inthe Press Release accompanying this announcement. Sir Fred Goodwin, Group Chief Executive, said: "Given the natural assumption that a consortium approach would bring furthercomplexity, we are pleased to set out a straightforward proposal that isattractive to our own shareholders as well as those of ABN AMRO." RBS will issue its trading statement in respect of the first six months of 2007on Tuesday 5 June. The Group continues to perform well in 2007 and we expect therate of underlying earnings growth in the first six months of the year to beslightly higher than that implied by the consensus earnings* forecast of 72.1pfor the full year. * Underlying earnings excluding integration costs and amortisation of purchasedintangible assets. 1. Enhanced Growth Prospects The acquisition of the ABN AMRO Businesses will enhance the RBS Group'sprospects for growth, both by enabling it to accelerate existing strategies forgrowth and by providing attractive new opportunities. Global Wholesale Businesses The combination of RBS Global Banking & Markets (GBM) and ABN AMRO's GlobalWholesale Businesses will create a leading corporate and institutional businesswith both scale and global reach, and with significantly enhanced growthprospects. GBM has over recent years established a strong platform for growth outside theUK in Continental Europe, the US and the Asia-Pacific region, with scale infinancing and risk management products and with deep customer relationships.GBM is now focused on leveraging this platform by adding new customers inexisting geographic areas and by achieving greater geographic reach. ABN AMRO'sGlobal Wholesale Businesses, while lacking scale in some important products,have extensive geographic reach and large but relatively under-developedcustomer franchises in Continental Europe, the US and Asia. In the combinedbusiness, GBM will generate greater value from ABN AMRO customer relationshipsby applying its relationship-driven model, which has delivered greatly superiorrevenue per customer and revenue per employee metrics. ABN AMRO is one of a relatively small number of banks with a strong capabilityin international cash management, payments and trade finance. These are 'sticky' products, often the foundation of long-term relationships which willprovide opportunities for GBM to sell other, higher value products. Inaddition, GBM will be able to enhance its customer relationships by offering ABNAMRO's stronger products and capabilities in cash management and trade finance. A current objective for GBM is to increase its exposure to high growth marketsin Asia and the Middle East. The acquisition of ABN AMRO's Global WholesaleBusinesses will enable GBM to make substantial progress on this objective, andwill give GBM opportunities to sell a broader range of products to ABN AMRO'slarge but relatively under-developed corporate customer base in these areas. Atthe same time, the acquisition of the ABN AMRO Businesses will enable GBM toincrease its exposure to high growth areas such as emerging markets and equityderivatives. In Latin America, RBS will acquire ABN AMRO's global clients, and corporatecustomers and branch network except in Brazil. Although relatively small, thispresence and capability in Latin America will enable GBM to enhancerelationships with corporate customers operating in this region. The combined business will have top 5 positions across a broad range of productsand a presence in over 50 countries. It will be ranked the number 1 corporateand institutional bank in the UK and Continental Europe and the number 5 in theUS and Asia, by client numbers. This combination of product strengths andleading customer franchises globally will give GBM enhanced competitiveadvantage in a market that is consolidating, and will provide a strong platformfor organic growth. LaSalle Bank The combination of Citizens and LaSalle will create a leading bank in the US,with a good balance between retail and commercial banking, a strong presenceacross a region including 32% of the US population and 32% of US businesses, andtop 10 rankings across a broad range of retail and commercial banking products. A key strategic objective for RBS has been to increase its presence andcapabilities in the US mid-corporate market, since this market has attractivereturns and relatively few banks have both the product skills and distributioncapacity to serve this market effectively. The acquisition of LaSalle, with itsstrong focus on middle-market companies, will enable RBS to accelerate thisstrategy and build a leading capability in the mid-corporate market in the US,with excellent prospects for growth. At the same time, Citizens will use its proven skills in retail banking to gainmore value from the combined branch network and leading positions, by share ofdeposits, in Illinois and Michigan. RBS America, including the combined Citizens and LaSalle, and the combinedwholesale banking activities, will be the fifth largest banking business in theUS by assets and, given its strength and breadth of capability, will have a widerange of opportunities for organic growth. International Retail Businesses In Asia, RBS has a strongly growing wealth management business, located in HongKong and Singapore, which serves the rapidly growing numbers of affluentcustomers in the region, and has established partnership businesses with Bank ofChina in credit cards and wealth management. Across ABN AMRO's branch networkin Asia, the Middle East and Europe are retail activities, offering retailbanking products including current accounts and credit cards, and an affluentbanking proposition. While these retail activities are thinly spread, RBSbelieves that there will be opportunities to build businesses in selectedcountries with large populations and high growth rates, accelerating RBS'swealth management strategy and adding the capability to distribute credit cards,and potentially a broader product range. Diversification by Geography The acquisition of the ABN AMRO Businesses will reduce RBS's dependency on theUK and will strengthen its platform for growth outside the UK. On the basis of2006 results, and full transaction benefits, the proportion of RBS's operatingprofit coming from outside the UK would increase from 42% to approximately 54%. 2. Attractive Financial Returns The total consideration payable by the Banks to ABN AMRO shareholders will be€71.1 billion (£48.2 billion)(1). Of this total, RBS will contribute 38.3%, or€27.2 billion (£18.5 billion) to buy the ABN AMRO Businesses. To finance its acquisition of the ABN AMRO Businesses(2), RBS expects to issue1,603 million new RBS shares and to contribute €12.7 billion (£8.6 billion) incash (approximately €6.2 billion of which will be raised as new Tier 1 capital). It is estimated that, in 2006, before allocation of shared assets, the ABN AMROBusinesses together generated profit before tax of €1,724 million(3), on an IFRSbasis. The combination of RBS's and ABN AMRO's overlapping and complementary businessescreates the opportunity for significant cost savings and revenue benefits. RBSbelieves that it will deliver cost savings amounting to €2,009 million (or€2,091 million, including its share of central cost savings), or 27% of thecosts associated with the ABN AMRO Businesses, and net revenue benefitsamounting to €853 million, or 9% of the income associated with the ABN AMROBusinesses, in the third year after completion of the transaction. The totalcost of delivering the transaction benefits is expected to be €4.0 billion(including RBS's share of central integration costs). These expectedtransaction benefits, and the cost of achieving them, have been subject toexternal review and challenge. After completion of the acquisition, expected to be around the end of 2007, theRBS Group's Tier 1 ratio is expected to be approximately 7.2%, with a preferencecontent temporarily increased to approximately 36%(4). Longer term, RBS willcontinue to target a Tier 1 ratio of approximately 7.5%, with a preferencecontent in the range 25% to 30%. The consideration to be paid by RBS for the ABN AMRO Businesses represents 7.8times consensus earnings(5) of the ABN AMRO Businesses for 2007, plus fullpost-tax transaction benefits. On RBS's forecasts for business growth and transaction benefits, the internalrate of return on the acquisition of the ABN AMRO Businesses will be 16.2%post-tax, well above the Group's hurdle rate of 12% post-tax. The acquisitionis expected to deliver a post-tax return on investment of 13.5%(6) in 2010, andto increase Group earnings per share by 0.9% in 2009 and by 7.3% in 2010. 3. Global Wholesale Businesses ABN AMRO's Global Wholesale Businesses ABN AMRO has a large wholesale banking business with a global footprint. It hascorporate banking operations in 53 countries. In addition to establishedpositions with large numbers of customer relationships in Europe and the US, ABNAMRO is present in emerging markets through offices in 11 countries in Asia, 5countries in Eastern Europe and 7 countries in Latin America. ABN AMRO is one of a relatively small number of banks with the global reach andproduct capability to be effective in international cash management, paymentsand trade finance. Through these transactional banking products, ABN AMRO hasbeen able to establish large numbers of corporate and institutional customerrelationships globally. However, many of these relationships are relativelyunder-developed, reflecting ABN AMRO's insufficient strength in many of thefinancing and risk management products which are most relevant and complementaryfor these customers. In addition to its international activities with large corporate andinstitutional customers, ABN AMRO has extensive relationships with mid-corporatecustomers in Continental Europe, Asia, the Middle East and, through LaSalle, theUS. The businesses which RBS will acquire are those that constituted ABN AMRO'sWholesale Client Services (WCS) Business Unit in 2005 (including the Netherlandsbut excluding Brazil) and the product capabilities serving wholesale clientswithin the Global Markets and Transaction Banking Product Business Units. In2006, WCS customers were transferred to the regional Business Units, except forthe largest customers which were maintained in the Global Clients Business Unit.In 2007, Global Clients customers have also been allocated to the regionalBusiness Units. RBS estimates that ABN AMRO's Global Wholesale Businessestogether generated income of €5,861 million and profit before tax of €630million in 2006, on an IFRS basis. Strategic Rationale There is a strong strategic fit between GBM and ABN AMRO's Global WholesaleBusinesses. GBM has considerable strength across a broad range of financing andrisk management products and an industry-leading cost:income ratio of 40%,reflecting deep client relationships and strong income per customer metrics.However, whilst GBM has been expanding its international reach in recent years,it still has limited presence outside major financial centres. The acquisitionof ABN AMRO's global branch network will enable GBM to accelerate this expansionrelative to its current strategy, under which the establishment of a globalbranch network and customer base would take a significant period and wouldrequire significant investment. ABN AMRO's considerable reach, through its global branch network, supports itsstrength in transactional products such as international cash management andtrade finance. ABN AMRO is also strong in faster-growth but more specialisedareas including equity derivatives and emerging markets. However, ABN AMRO'slack of depth and scale in some important products has led to relatively weakincome per customer and per employee, resulting in a high estimated cost:incomeratio for its Global Wholesale Businesses of 89% in 2006. RBS's relationship-driven model and focus on deepening customer relationshipsenabled it to generate income of over £1 million from each of more than 700large customers in 2006. GBM believes that this revenue generation issignificantly above the level achieved by ABN AMRO from its Global Clientsfranchise. For these equivalent customer groups, GBM estimates that itgenerated 1.7 times the income per customer of ABN AMRO and 2.6 times the incomeper front office employee of ABN AMRO. RBS will deepen customer relationships and increase revenues per customer andper employee across ABN AMRO's extensive base of large and mid-corporatecustomers. To achieve this, GBM will apply its relationship-driven model inwhich relationship managers are enabled and incentivised to deliver the bank'sfull range of products and services from debt capital markets to cashmanagement. The RBS model focuses on the overall profitability of customerrelationships and encourages a collaborative approach between relationship andproduct teams. The model is supported by clear client and revenueaccountabilities, transparent incentives for collaboration, a focus on highervalue added income streams and a simple organisation structure which encouragesthe development of cross-product customer solutions. In addition to the application of its relationship management model, GBM will beable to create additional value from ABN AMRO's customer franchise throughleveraging its strengths in the product areas that are both most relevant tolarge corporate and institutional customers and which offer the highest valuerevenue streams, for example in structured finance, risk management andsecuritisation. GBM brings the requisite scale and strength in these keyproduct areas that ABN AMRO lacks. The combined business will have product leadership across a broad range ofcorporate banking products, benefiting from the complementary and overlappingproduct strengths of GBM and ABN AMRO. The combined business will rank third inall bonds and loans globally, first in global securitisations, global projectfinance and all international bonds, second in emerging markets syndicatedcredits, third in foreign exchange and fifth in international cash management.It will also be a leading player in the global interest rate derivatives market,where GBM has had particular success in the distribution of sophisticated riskmanagement products to its large and mid-corporate customers. Ranking by Product GBM Strengths GBM ABN AMRO GBM + ABN AMROGlobal All Bonds and Loans #6 #17 #3Foreign Exchange #4 #12 #3Global Securitisations #2 #18 #1European Leveraged Loans #2 #16 #1Global Project Finance #1 #5 #1EMEA Syndicated Loans #1 #9 #1 ABN AMRO Strengths GBM ABN AMRO GBM + ABN AMROEuro Denominated Bonds #8 #4 #1International Covered Bonds #18 #1 #1Emerging Mkts Syndicated Credits #31 #2 #2International Cash Management #28 #6 #5 GBM ABN AMRO GBM +GBM + ABN AMRO Strengths ABN AMROAll international bonds #8 #10 #1Asia-Pacific Syndicated Loans #13 #15 #5US Syndicated Loans #8 #18 #7 Source: Dealogic, Thomson Financial, Euromoney polls The combined business will be well diversified by geography across the UnitedKingdom, the rest of Europe, the US and Asia-Pacific, with a small contributionfrom Latin America. Within these regions, the combined business will haveconsiderable local presence through which to distribute its strong and broadproduct offering. In Europe, including the UK, the combined business will consolidate its positionas the leading wholesale and fixed income bank. GBM will apply its relationshipmodel and product strengths to deepen ABN AMRO's extensive franchise inContinental Europe with large corporate and financial institutions, while ABNAMRO's international cash management, payments and trade finance products willenable GBM to enhance its customer relationships. ABN AMRO's local presencewill enable GBM to extend from the largest corporates and financial institutionsto the middle market, and to extend geographically into fast growing markets inEastern Europe and the Middle East. The combination of the two banks'structured investor products capabilities and distribution platforms will createa significantly stronger business with good prospects for growth in an expandingmarket. In North America, GBM has been implementing a strategy with the objective ofbecoming a top 5 corporate bank. The combination with ABN AMRO's GlobalWholesale Businesses will enable GBM to accelerate the implementation of thisstrategy. The combined product strengths, including the capital marketsexpertise of RBS Greenwich Capital, will enable the combined group to generateincreased revenues from the existing GBM and ABN AMRO client bases. Thebusiness will build on the combined industry sector strengths of GBM and ABNAMRO in consumer products, retail, healthcare, industrials, energy andutilities, and will leverage their complementary strengths in real estatefinancing to create a leading business in this area. In addition to thesignificant opportunity to grow the large corporate and institutional franchisein the US, the combined business will be able to deliver a full range offinancial and risk management solutions to mid-corporate customers, includingthe combined customer base of Citizens and LaSalle. In Asia, the combined GBM and ABN AMRO wholesale businesses have the capacity tobuild a significant regional corporate bank. As in the US and Europe, thecombined business will seek to increase the depth of ABN AMRO's current customerfranchise by applying GBM's business model. ABN AMRO's existing local presenceand infrastructure in key markets with strong growth will enable GBM toaccelerate significantly its plans for developing business with customers inIndia, South Korea and Taiwan. In addition, there is a significant growthopportunity to develop ABN AMRO's emerging markets and equity derivativesproducts for GBM's customers globally. In Latin America, ABN AMRO has established presence and customer relationships.The combined business will deepen these relationships, in particular byleveraging GBM's strengths in natural resources and project finance. GBM hashad significant success in developing customer relationships in Iberia, and thepresence and capabilities in Latin America will enable it to support thesecustomers' substantial activities in the region. The combined business will be the third largest corporate and institutionalbanking and markets business globally by fixed income revenues (revenues fromall areas except M&A advisory, cash equity and asset management businesses). Byclient numbers, it will rank first in the United Kingdom and Continental Europe,fifth in the US and fifth in Asia-Pacific excluding Japan. Customer Numbers and Ranking Relationships with Large Corporates and GBM ABN AMRO GBM + ABN GBM +Financial Institutions AMRO ABN AMROUK 270 100 290 #1Continental Europe 160 250 320 #1US 200 300 400 #5Asia-Pacific (excluding Japan) 20 200 200 #5 Source: RBS estimates Business Plan The management team of GBM has developed a clear and detailed roadmap for theintegration of ABN AMRO's wholesale client businesses. GBM will follow theGroup's established integration principles: minimising disruption to customersand customer-facing activities, retaining the best talent from each organisationthrough a fair appointment process based on merit and competencies, creatingsingle global platforms and creating the capability for future growth whilemaintaining leading efficiency ratios. The integration of GBM and ABN AMRO's Global Wholesale Businesses will be led bya management team including many who were actively involved in the integrationof NatWest. During the first 45 days after completion of the proposed Offer, GBM will workwith the management of ABN AMRO to verify and expand the information receivedand assumptions made on the basis of the limited due diligence access grantedbefore completion. By Day 45, GBM intends to have validated a base-lined planfor the achievement of synergies. This plan will form the basis forconsultation with employee bodies and regulators. GBM will review ABN AMRO's activities in markets where it does not currentlyoperate and intends to continue ABN AMRO's progress in aligning the cashequities business to support its enlarged and growing activities in equityderivatives. Transaction Benefits GBM believes that it will be able to generate significantly higher revenues fromABN AMRO's customer franchise by leveraging the combined businesses' enhancedproduct strengths and by applying its proven management capabilities. RBSbelieves that it will also be able to achieve substantial cost savings throughde-duplication of infrastructure and support activities. GBM expects to deliver transaction benefits which will increase its profitbefore tax by €2,042 million in the third year after completion of thetransaction. Of this total, GBM estimates that cost savings will amount to€1,300 million and that net revenue benefits (after associated costs and baddebts, and allowing for attrition) will increase profit before tax by €742million. These expected transaction benefits have been subject to externalreview and challenge. GBM will deepen customer relationships and increase revenues per customer andper employee across ABN AMRO's large and mid-corporate customer base. Toachieve this, GBM will apply its relationship-driven model and the techniqueswhich have enabled it to deliver superior revenue per customer and revenue peremployee metrics and a cost:income ratio of 40%. At the same time, RBS willhave stronger capabilities in international cash management and trade finance,equity derivatives and emerging markets to offer to its customers. There is some overlap between the customer franchises of RBS and ABN AMRO,particularly in the UK. However, due to the complementary product propositionsof the two businesses, revenue losses are expected to be limited, butconservative allowances for these potential revenue losses have been made. The expected net revenue benefits of €742 million per annum represent 13% of ABNAMRO's relevant revenues and 5% of GBM and ABN AMRO's combined relevantrevenues. Net Revenue Benefits in 2010 Number of InitiativesGlobal Banking €137m 7Global Markets €477m 12Transaction Banking €128m 11Overall impact on profit before tax €742m 30 The combination of GBM and ABN AMRO's Global Wholesale Businesses will enablesubstantial cost savings to be achieved, as RBS implements a single businessarchitecture. Cost savings will be achieved by de-duplication of IT platformsand supporting infrastructure. RBS's existing IT platform will be used for themajority of products and functions, but it is expected that the IT platformsupporting ABN AMRO's cash management and trade finance business, as a corestrength of that global business, will be retained. Further cost savings will be achieved by streamlining combined functions acrossoperations, finance, risk, human resources and other support areas, and throughprocurement (where RBS is acknowledged to be a leader globally) and propertyefficiencies. It is also expected that cost savings will be achieved bybringing in-house certain operations which ABN AMRO has outsourced to externalproviders. Additional cost savings will be achieved by the elimination of overlaps in frontoffice trading and support functions, as trading activities are consolidatedinto regional centres, while minimising disruption to customer-facingactivities. The expected cost savings resulting from these initiatives amount to €1,300million per annum, representing 25% of ABN AMRO's relevant expenses and 14% ofGBM and ABN AMRO's relevant expenses. The four principal areas ofde-duplication and efficiency saving are set out below: Cost Savings Number of in 2010 InitiativesFront office €379m 10IT and operations €632m 27Functional support €166m 16Procurement and property €123m 5Total cost savings €1,300m 58 The total of €1,300 million is split €1,060 million from global corporate andinstitutional businesses (including supporting IT and infrastructure) and €240million from mid-corporate and commercial businesses. GBM is the most efficient business in its peer group with a cost:income ratio of40% in 2006. The combination with ABN AMRO's Global Wholesale Businesses willinitially increase the combined business's cost:income ratio to 59%, butdelivery of the promised transaction benefits will reduce the cost:income ratioto approximately 51% - higher than GBM now, but still market leading. 4 LaSalle Bank LaSalle Bank LaSalle operates commercial and retail banking businesses across Michigan and inthe Greater Chicago area of Illinois. LaSalle is the largest bank in Michiganand the second largest in Chicago, ranked by deposits. The company also has asmall presence in Indiana. In total the company operates over 400 bankbranches. LaSalle's focus is on commercial banking. In its home markets of Illinois andMichigan it has major positions in lending to middle-market companies. LaSallehas excellent products to offer its commercial customers in addition totraditional deposits and lending, including treasury and cash managementproducts, international trade and foreign currency services. In addition to its commercial banking activities in Illinois and Michigan,LaSalle offers a range of commercial banking products and services nationally.These include commercial lending, commercial real estate, leasing andasset-based lending. LaSalle serves corporate customers from a network of 24offices across the US. At 31 December 2006, LaSalle had assets of $125 billion. The total portfolio ofloans and leases amounted to $64.8 billion and deposits were $62.2 billion. In2006, LaSalle generated income of $4,041 million and profit before tax andextraordinary items of $1,228 million, on a US GAAP basis. Strategic Rationale There is a compelling strategic rationale for the combination of Citizens andLaSalle, driven by complementary business strengths and customer franchises andexcellent geographic fit. The combination of Citizens and LaSalle will create aleading retail and commercial bank in the US. With advantages arising from thecombination of Citizens' expertise in retail banking and LaSalle's expertise incommercial banking, and from scale in customer numbers and across a range ofretail and commercial products, the combined bank will have many opportunitiesfor growth. There is an excellent balance between the business mix of Citizens and LaSalle.LaSalle is strong in commercial banking whilst Citizens is strong in retailbanking. The combined business will be well balanced between these twoprincipal business lines. Loans $bn Citizens LaSalle Totalat Dec 06Retail 75.6 71% 17.2 27% 92.8 54%Commercial 29.3 28% 46.9 72% 76.2 45%Other 1.1 1% 0.7 1% 1.8 1%Total 106.0 100% 64.8 100% 170.8 100% RBS has already identified the US mid-corporate and commercial market as animportant opportunity for growth. This market offers attractive financialreturns, and relatively few banks have the combination of product strengths anddistribution capacity to serve this market effectively. LaSalle's greater strength in commercial banking will enable the combinedbusiness to accelerate delivery of RBS's stated ambition to become a strongforce in mid-corporate and commercial banking in the US, leveraging Citizens'and LaSalle's distribution capacity and the product strengths of the enlargedRBS Group's combined wholesale banking activities in the US, including RBSGreenwich Capital. LaSalle's national commercial businesses will extend Citizens' and GBM'sdistribution capacity across the US. LaSalle has particular sector strengths inhealthcare, energy and surface transportation, which will complement GBM'ssector focus in the US and will provide additional opportunities fordistribution nationally of GBM's financing and risk management products.LaSalle's commercial real estate and leasing businesses will complement GBM'sexisting strengths in these areas. The combined business will have the opportunity to build on LaSalle's wealthmanagement proposition, which is currently targeted at the owners and executivesof businesses that form part of LaSalle's commercial franchise. There is an excellent geographic fit between Citizens' and LaSalle's retailfranchises. LaSalle is strong in Illinois and Michigan where Citizens alreadyhas 260 branches, but lower market shares than LaSalle. The combined businesswill have leading positions across 13 adjacent states in the north eastern andmidwestern US. The combined business will have top 10 positions across a broad range of retailand commercial banking products. In retail banking, it will be sixth largest indeposits and seventh in secured personal lending, including home equity lending.In commercial banking, it will be sixth largest in lending and fifth inleasing. The combined business will gain competitive advantage from thestrength and breadth of the capability it can offer customers. Ranking Citizens LaSalle Citizens +LaSalleDistributionBranches #8 #25 #7Supermarket branches #2 n/a #2ATMs #9 #16 #8 RetailDeposits #10 #18 #6Secured personal loans #7 n/a #7Credit cards #9 n/a #9 CommercialCommercial lending #14 #8 #6Leasing #8 #14 #5Merchant acquiring #10 n/a #10 RBS America, including the combined Citizens and LaSalle, and the combinedwholesale banking activities, will be the fifth largest banking business in theUS by assets and will have a wide range of opportunities for organic growth inthe US. Business Plan Citizens' management has developed a detailed integration and business plan,consistent with the principles that have underpinned its strong track record ofacquisitions, integrations and IT conversions. These principles includeminimisation of disruption to customers and customer-facing activities,conversion to a single operational platform, cost decisions based on growthopportunities and selection of the best talent from both organisations. Citizens and LaSalle will be combined in a single bank with an organisationalstructure mirroring the model which has served the RBS Group well in the UnitedKingdom. The combined bank will be organised on a functional basis, to ensurefocus on both retail banking and commercial banking, with central manufacturingand support functions. During the first 45 days after completion of the proposed Offer, Citizens willwork with the management of ABN AMRO to verify and expand the information andassumptions made on the basis of the limited due diligence access granted beforecompletion. By Day 45 Citizens will have validated a base-lined plan for theachievement of synergies. Transaction Benefits Significant transaction benefits will be possible as a result of theacquisition. Citizens expects to deliver total transaction benefits which willincrease its profit before tax by $1,065 million (€820 million) in the thirdyear after completion of the transaction. These expected transaction benefitshave been subject to external review and challenge. The combination of the two banks will create significant scope for revenueenhancement. Extension of LaSalle's commercial banking proposition to Citizens'footprint provides an important growth opportunity. Enhancement of LaSalle'sretail banking product range and sales and service processes by application ofthe Citizens model will generate additional revenues. There will also be gainsfrom using the LaSalle wealth management proposition in the Citizens franchise. As a result of these initiatives, it is expected that net revenue benefits willincrease profit before tax by $300 million (€231 million) in the third yearafter completion of the transaction. This represents 7% of LaSalle's revenuesand 3% of the combined revenues. LaSalle's end-2006 balance sheet included $31 billion of available-for-salesecurities including mortgage-backed securities. These securities are AAA ratedand have minimal credit risk, but are subject to pre-payment variability. RBSregards these securities as attractive investments, but believes that inCitizens it already has enough exposure to this category, and so on completionintends to reduce the combined securities portfolio by $28 billion. This willreduce income by an estimated $155 million (€120 million), but will limitbalance sheet risk and will release capital, reducing the amount of capitalrequired for the transaction. The overall impact of net revenue benefits amounting to $300 million, less theincome reduction of $155 million resulting from the sale of securities, will bean increase in profit before tax of $145 million (€111 million). Net Revenue Benefits in 2010 Number of InitiativesCommercial banking $130m 10Retail banking $140m 11Other areas $30m 3Total net revenue benefits $300m 24Sale of securities $(155)mOverall impact on profit before tax $145m 24 Citizens expects to achieve cost savings by converting to a single technologyand operations platform, by de-duplication of support functions and throughsavings in procurement. Additional cost savings will arise from consolidationof a number of overlapping activities in asset-based lending, cash managementand consumer finance, and from consolidation of adjacent branches. As a result of these initiatives, Citizens estimates that cost savings willamount to $920 million (€709 million) in the third year after completion of thetransaction. This represents 35% of LaSalle's expenses and 16% of combinedexpenses. Cost Savings Number of Initiatives in 2010Manufacturing $320m 3Administration and support $260m 6Efficiency savings $120m 12Retail $130m 3Consumer finance $20m 5Commercial and corporate $70m 3Total cost savings $920m 32 Had these promised transaction benefits applied in 2006, the pro forma cost:income ratio of the combined Citizens and LaSalle bank would have been 47.6%,similar to Citizens' 51.5% and significantly lower than LaSalle's 65.9%. Citizens' confidence that it can achieve these transaction benefits is supportedby its track record in successful IT conversions and delivery of promisedbenefits in previous transactions. Over the last 15 years, Citizens has carriedout 27 integrations and many of the Citizens team which will be responsible forthe integration of LaSalle have been involved in Citizens' previousintegrations. 5. International Retail Businesses ABN AMRO Retail Businesses in Asia, Middle East and Europe ABN AMRO has an extensive network of branches in Asia and the Middle East,principally to support its international cash management, payments and tradefinance businesses for commercial customers. Many of these branches are alsoactive in retail banking, although generally only on a limited scale. ABN AMRO has retail activities in nine markets in Asia and the Middle East(7). • East Asia: China, Hong Kong, Singapore, Indonesia, Malaysia, Taiwan • South Asia: India, Pakistan • Middle East: UAE The most significant presence is in India, where ABN AMRO has 27 branches, andthe UAE, with 17 locations. The branches in India are in major conurbationsacross the country and include 6 branches in New Delhi and 3 in Mumbai. In theUAE the network is focused on key locations in Abu Dhabi and Dubai. ABN AMRO also has a presence in Mainland China, with 11 branches, and Taiwan,with 8 branches. In Pakistan, ABN AMRO has 12 branches (excluding Prime Bank,which will be included in the Shared Assets). The principal product lines currently offered by ABN AMRO in Asia and the MiddleEast are mass market retail banking, affluent banking, under the Van Gogh brand,and credit cards. ABN AMRO has about 3.5 million retail customers in theregion, including about 100,000 Van Gogh customers and approximately 3 millioncredit cards, which are mainly in Taiwan and India, with smaller portfolios inSingapore, Indonesia, Hong Kong and the UAE. ABN AMRO also has retail businesses in Spain, Romania and Kazakhstan andstockbroking businesses in India, Australia and New Zealand. Outlook RBS believes that there are attractive opportunities for growth, building on ABNAMRO's established infrastructure to support retail activities in countries withlarge populations and high growth rates. However, RBS notes that the retailbusinesses in Asia, the Middle East and Europe are thinly spread across manycountries. RBS estimates that ABN AMRO's retail businesses in Asia, the MiddleEast and Europe, together generated income of €607 million and profit before taxof €88 million in 2006, on an IFRS basis. Because of limited scale, some ofthese retail businesses may have relatively high operating costs and customeracquisition costs, and so lack competitive advantage. After completion, RBS will analyse the retail activities country by country.RBS expects to focus on growing significant retail businesses in selected ABNAMRO countries. Factors affecting the selection of countries will includecompetitive advantage and scalability of the existing operations, economicgrowth rates and the competitive and regulatory environment for financialservices. RBS also expects to focus on affluent banking and credit cards,products where RBS is strong in the UK and has significant activities outsidethe UK, and products likely to appeal to growing numbers of affluent customersin these high growth economies. The existing infrastructure supporting currentaccounts provides the possibility of a broader product offering. RBS will seek to exit retail businesses not having critical mass or crediblegrowth prospects. Because of the limited materiality of ABN AMRO's International Retail Businessesin the context of this transaction, RBS has not at this stage included anyspecific initiatives and transaction benefits in its overall estimates ofrevenue benefits and cost savings. Important Information In connection with the proposed Offer, RBS expects to file with the SEC aRegistration Statement on Form F-4, which will constitute a prospectus, and theBanks expect to file with the SEC a Tender Offer Statement on Schedule TO andother relevant materials. INVESTORS ARE URGED TO READ ANY DOCUMENTS REGARDINGTHE PROPOSED OFFER IF AND WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAINIMPORTANT INFORMATION. Investors will be able to obtain a copy of suchdocuments, without charge, at the SEC's website (http://www.sec.gov) once suchdocuments are filed with the SEC. Copies of such documents may also be obtainedfrom RBS and the other Banks, without charge, once they are filed with the SEC. This communication shall not constitute an offer to sell or the solicitation ofan offer to buy any securities, nor shall there be any sale of securities in anyjurisdiction in which such offer, solicitation or sale would be unlawful priorto registration or qualification under the securities laws of any suchjurisdiction. This press release is not an offer of securities for sale into theUnited States. No offering of securities shall be made in the United Statesexcept pursuant to registration under the US Securities Act of 1933, as amended,or an exemption therefrom. Forward-Looking Statements This announcement includes certain "forward-looking statements". Thesestatements are based on the current expectations of RBS and are naturallysubject to uncertainty and changes in certain circumstances. Forward-lookingstatements include any statements related to the benefits or synergies resultingfrom a transaction with ABN AMRO and, without limitation, statements typicallycontaining words such as "intends", "expects", "anticipates", "targets","plans", "estimates" and words of similar import. By their nature,forward-looking statements involve risk and uncertainty because they relate toevents and depend on circumstances that will occur in the future. There are anumber of factors that could cause actual results and developments to differmaterially from those expressed or implied by such forward-looking statements.These factors include, but are not limited to, the presence of a competitiveoffer for ABN AMRO, satisfaction of any pre-conditions or conditions to theproposed Offer, including the receipt of required regulatory and anti-trustapprovals, the successful completion of the Offer or any subsequent compulsoryacquisition procedure, the anticipated benefits of the proposed Offer (includinganticipated synergies) not being realized, the separation and integration of ABNAMRO and its assets and the integration of such businesses and assets by RBSbeing materially delayed or more costly or difficult than expected, as well asadditional factors, such as changes in economic conditions, changes in theregulatory environment, fluctuations in interest and exchange rates, the outcomeof litigation and government actions. Other unknown or unpredictable factorscould cause actual results to differ materially from those in theforward-looking statements. RBS does not undertake any obligation to updatepublicly or revise forward-looking statements, whether as a result of newinformation, future events or otherwise, except to the extent legally required. Merrill Lynch International, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as financial adviser toFortis, RBS and Santander and as underwriter for Fortis, RBS and Santander, andis acting for no one else in connection with the proposed Offer, and will not beresponsible to anyone other than Fortis, RBS and Santander for providing theprotections afforded to customers of Merrill Lynch International nor forproviding advice to any other person in relation to the proposed Offer. The Royal Bank of Scotland plc, which is authorised and regulated in the UnitedKingdom by the FSA, is also acting as financial adviser to RBS and is acting forno one else in connection with the proposed Offer, and will not be responsibleto anyone other than RBS for providing the protections afforded to customers ofThe Royal Bank of Scotland plc nor for providing advice to any other person inrelation to the proposed Offer. Any Offer made in or into the United States will only be made by the Banks and/or RFS Holdings directly or by a dealer-manager that is registered with the SEC. -------------------------- (1) Based on undiluted number of shares, as set out in Appendix IV of Overviewof Proposed Offer (2) On a fully diluted basis (3) This estimate is based on the 2006 Report & Accounts of ABN AMRO. However,as the division of the ABN AMRO Group as set out above does not correspond tothe Business Unit definitions in ABN AMRO's 2006 Report & Accounts, theseestimates are not audited and may not be accurate. (4) On a proforma proportional consolidated basis Tier 1 ratio of 7.1% andpreference content temporarily increased to approximately 40%. (5) Consensus earnings for 2007 based on brokers' notes that included BusinessUnit forecasts for ABN AMRO. (6) Return on investment defined as profit after tax plus post-tax transactionbenefits over consideration plus post-tax integration costs. (7) Excluding ABN AMRO's 40% stake in Saudi Hollandi which, although reported inBU Asia, will be included in the Shared Assets. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
RBS.LBanco Santander