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RBS wins - or does it?

• Robert Peston
• 3 Oct 07, 09:25 AM

Long long ago, in a world where central banks could control interest rates and commercial banks lent to each other as a matter of routine, two British banks began a titanic contest to win control of ABN Amro, the pride of Dutch finance.

Today, in this new world of poisoned money markets ruled by fear and mistrust, the gruelling struggle may well be over, in all but name.

A consortium led by Royal Bank of Scotland, whose other members are Fortis of Belgium and Santander of Spain, was already well ahead. Its €70bn-odd offer is worth vastly more than Barclays' bid - because at a time when all institutions are hoarding cash, RBS's readies are seen by investors as much more desirable than Barclays' shares.

Within hours, RBS and partners should clear their last formal obstacle. Europe's competition authority is expected to announce that it is placing no prohibitive conditions on the takeover taking place.

At that moment, Barclays' board would privately recognise that it's game over - although they may not admit as much publicly till Friday or even Monday (just in case RBS encounters some unlikely last minute hitch before its offer closes in a formal sense).

As and when RBS and co carry off ABN, it will be a big moment. Barclays will have to answer the what-now question. Having shouted very loudly that it saw its future as a global giant, pumped up by ownership of ABN, it needs to explain why its shareholders should feel just as excited by its growth prospects as a rather smaller institution.

That said, Barclays' failure was arguably in the interests of its owners. As I wrote on September 7, this summer's mayhem in the banking industry made it questionable whether it was remotely rational for any bank to add to its management burden by buying another bank.

A few months ago it may have seemed heroic of Barclays to initiate the largest ever cross-border banking takeover of all time. Now it seems hubristic.

So what of RBS? It bravely becomes significantly bigger in global investment banking and commercial banking at a time when retrenchment might seem more appropriate.

Investing against the cycle is often a recipe for success. But would RBS have launched this deal all those months ago if it knew then what it knows now about the fragility of confidence among providers of credit?

RBS is a legendary cost-cutter. And doubtless it will display those talents to the full in the integration of its bits of ABN, after that bank is broken up and shared out between the troika.

However it is very difficult to argue that the banking trio is obtaining assets from ABN on the cheap. Note that RBS's share price has fallen by 15% or so since the consortium said in the spring that it wanted to buy ABN, while the consortium's largely cash offer for ABN was actually nudged up.

The 15% fall in RBS's share price may well be a proxy for the fall in the intrinsic value of ABN, given what has happened to banking markets over the past couple of months. And the part of ABN that has surely been most hurt would be what RBS will end up owning. That is the operation that deals with the bruised clever clogs of private equity, hedge funds, other banks and the treasury departments of companies.

RBS's redoubtable chief executive, Sir Fred Goodwin, would rather stick pins in his eyes than overpay. But he faces his toughest ever challenge to prove this is the right deal at the right time.

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