Business Insight Zone

The proposed Barclays purchase of ABN Amro has loomed large in the banking world for weeks, and even more so since Barclays came forward with a formal offer north of $90 billion. Any deal of that magnitude — and this one stands to be the largest bank merger ever — would draw plenty of attention for its sheer size, but the Barclays/ABN tie-up may carry even more weight as a harbinger of the wave of European bank consolidation that industry watchers have long figured should be coming.

The logic of consolidation is clear enough: big banks consolidate so that they can squeeze out costs from combined operations. This logic has ruled for years in US banking; witness the mega-acquisitions of Nationsbank (by Bank of America), Wells Fargo (by Norwest, which took the Wells Fargo name), and Bank One (by JPMorgan Chase). Deals like these — and Barclay’s purchase of ABN Amro — are also meant to expand the acquiring banks’ reach into new geographies and new niches of financial services.

While the offer for ABN Amro is of historic size, it is not unprecedented in the history of European financial services. Take, for instance, the creation of Fortis, which assumed its current form through the combination of several Dutch and Belgian banks and insurers. But the structure of Fortis may also provide a clue as to one reason why large mergers have been unusual in European banking: the company has an elaborate corporate structure designed to ensure that its identity is split exactly between Belgium and the Netherlands.*

It’s easy to think of Europe as one big market because of the European Union’s robust economy and the reach of the Euro currency. And indeed, the opening of Europe’s national borders to outside trade since World War II has been one of the profoundest changes in the world’s recent economic history. Still, old issues of national pride do arise, robust European Union or no. This was made exquisitely clear last year when the steel giant Mittal came courting for the hand of Arcelor, and it was made clear again when Barclays and ABN Amro announced their deal, which preserves key Dutch and British aspects of the merging companies, not least by aiming to install the British CEO in the Dutch headquarters.

Setting aside issues of nationalism, there’s so much money at stake in the purchase of ABN Amro that the bank’s other major suitor, a consortium of Banco Santander Central Hispano, Fortis, and The Royal Bank of Scotland, seems intent on stopping the Barclays purchase if it can. However this new union of European banks turns out, the process surely won’t be boring.

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* To document this structure, Hoover’s actually maintains four separate records for the grouping of parent companies that make up Fortis: Fortis N.V., Fortis SA/NV, Fortis Banque SA/NV, and Fortis Insurance N.V.