From Unwanted Stepchild to Happy Orphan
October 02, 08While the financing problems within the diamond industry pale in comparison to the credit crunch in the international markets, the remark
The ID&JG heads reminded me of a movie where a wife storms into her bedroom and finds her husband cuddled up with another woman – who then nakedly flees the scene. “Who is that woman?” thunders the wife. “What woman?” responds hubby. “The one that just left!” Says husband innocently, “I didn’t see any woman; I really don’t know what in heaven’s name you are talking
Before the dramatic events of this week the parties with whom talks were in various stages of deliberations included the Royal Bank of Scotland, the Standard Chartered Bank and HSBC. Apparently, there also were contacts with the U.K.-headquartered Barclays Bank, a 300 year-old bank operating in over 50 countries and employing more than 150,000 people. Various proposals were on the t
Today, our friends in Antwerp can stop acting. The entire ABN AMRO bank is formally up for sale, after Fortis was bailed out with a €11.2 billion (about $16 billion) injection from the governments of the Netherlands, Belgium and Luxembourg. In return, these governments secured a 49 percent ownership stake in various parts of Fortis. The Belgium government invested €4.7 billion in Fortis Bank (Belgium); the Dutch government put €4.0 billion in Fortis Bank Nederland (Holding) N.V. and Luxembourg spent €2.5 billion in that country’s Fortis Bank. What complicates the situation somewhat is that the ID&JG belongs to the Dutch Fortis, even though the ID&JG is headquartered in Antwerp.
Parts of the ‘old’ ABN AMRO have already been integrated into the Royal Bank of Scotland, or have been otherwise disposed of, such as the La Salle bank in the U.S., and the banks in Brazil and
The problems concerning Fortis caused many savers and corporate clients to withdraw billions of dollars in just a few days. Its share price plunged. Many ABN AMRO clients followed suit, not realizing that ABN AMRO is still an independent, and, it claims, quite successful, entity. Jan Peter Schmittmann, the managing board member responsible for ABN AMRO’s Business Unit (BU) Netherlands, who in the past was also responsible for the bank’s diamond division (he was the direct boss of previous ID&JG head Peter Gross), placed full-page advertisements in the Dutch press to reassure clients that “ABN AMRO enjoys a good financial position; its balance sheet meets all the capital adequacy requirements of the Dutch central bank.” Executives of ABN AMRO reportedly visited important clients to convey the same message.
Government Stewardship in the Sale of ABN AMRO’s Assets
Schmittman, in his statement, also noted that the fact that the (Dutch) government is now involved in the bank should present an added comfort level. What is far more relevant to the ABN AMRO diamond division is that the Belgian government now has a financial and political stake in the future of the bank. Fortis and the Benelux governments, as part of the agreement hammered out this week, have committed to selling ABN AMRO for
The Belgian government is certainly the first among equals in the decision making process that will lead to the sale of the ABN AMRO bank – or the separate sale of various parts if that becomes the more realistic option. The governments of Belgium, the Netherlands and Luxembourg will receive significant board representation in the respective Fortis banks. The Dutch government has gone on record that, when considering to whom to sell ABN AMRO, it will ensure that the bank will end up in safe and strong hands. This undertaking, made by Finance Minister Wouter Bos, directly affects the diamond division as well.
This by itself is good news for the diamond industry, which had been very worried
Even though technically this may be more of an issue for the Dutch government, the Belgian partners in Fortis will make it clear that diamond industry contributes some 7 percent to the regional GDP. Both the Belgian and Dutch governments are acutely aware of the enormous role ABN AMRO plays in financing the Antwerp diamond business. Without banks, the Antwerp diamond business would evaporate.
The ID&JG has actually performed amazingly well since it was acquired by a consortium of Fortis, RBS and Santander in October 2007. During the past 12 months, the share of ABN AMRO diamond industry financing in the Antwerp market has actually grown. The total Antwerp diamond industry debt in September 2008 came to $3.75 billion, a growth of $700 million in one year. Currently, ABN AMRO’s market share is
The market share of its main competitor, the Antwerp Diamond Bank (ADB) decreased from 43.2 percent to 40.3 percent in that same period, though in money terms the ADB exposure grew by some $170 million to $1.47 billion. ABN AMRO and ADB together account for over 82 percent of the market. The three other players are quite insignificant: we estimate that, as of early September the State Bank of India has a $240 million exposure; ICICI $319 million and the Bank of India $105 million.
Though a relatively new player, there are reports that the ICICI bank is already decreasing its exposure to the diamond business; its talks with Fortis never went beyond preliminary flirtations and the market rumors on its possible take-over may have been mostly public relations for this Indian bank.
Questions Concerning the ABN AMRO Takeover
Fortis was a much smaller bank than ABN AMRO, and by being part of the consortium that purchased the bank, it clearly tried to bite off more than it could chew. This appetite – and prob
The minister, as a major shareholder, will now have a chance to gain insights into the real situation of Fortis. Reportedly the minister has aired suspicions that Fortis may have kept serious risks off its balance sheets to hide its true state of affairs. There may also be issues on whether the Dutch central bank may have been too lax in its oversight over the banking and insurance group. The minister has announced that they will wish to sell the ABN AMRO Bank as soon as possible.
Initially, the ING bank was believed to be a candidate to take over ABN AMRO, but this possibility was dropped early in the week. The three parties which are now mentioned most are the Royal Bank of Scotland, the French BNP-Paribas, and the Deutsche Bank. From an ABN AMRO diamond division perspective, the Royal Bank of Scotland (RBS) would prob
From a RBS perspective, it will have a chance to buy the remainder of ABN AMRO for
A purchase by the BNP-Paribas bank may also be interesting. Old-timers in Antwerp recall that Paribas had a bad past in diamond financing and, apparently, in the early part of last century, the by-laws of the bank even contained a prohibition on engaging in diamond financing. But that’s just a historical anecdote of no present consequence. (Later, under pressure of some shareholders, the Belgian subsidiary of Paribas did get involved in the industry, but in its 20 years of financing, its exposure was kept to a minimum and rarely exceeded $120 million. That diamond portfolio was subsequently taken over by the Dexia bank.)
From an overall banking perspective, BNP-Paribas is a logical choice. The French banks have suffered less from the U.S. subprime fallout and their liquidity positions are better. It may find it very advantageous to have a regional bank in the Benelux countries. It may also be interested in the ID&JG – but, at this point, this is purely conjecture on my part.
For the Deutsche Bank, the ABN AMRO bank would be relatively small fish. If it would acquire the bank, it would not subsequently sell off its components – and the ID&JG may well continue to flourish without major impediments – while enjoying a strong parent. Not a bad solution for an orphan.
In informal talks with sources involved in the selling process, the view is emerging that – in the end – the International Diamond & Jewelry Group could be sold as a “stand alone” asset. Moreover, parties interested in Fortis’ private banking may also have an interest in managing a specialized global diamond financing operation, hoping that loyal diamond clients would also want to seek the bank’s wealth management services.
The Options of the ABN AMRO Diamond Division
Nevertheless, the situation of the ABN AMRO’s ID&JG is consider
There is a real possibility that whoever buys ABN AMRO will follow the ‘old’ Antwerp Diamond Bank model. It was a joint venture that had four parents - a subsidiary of De Beers with 12.5 percent; KBC and Société Générale (which is now Fortis) each with 37.5 percent; and BBL (which is now ING) with 12.5 percent. Conceiv
Some observers stressed that the Belgian government may not feel at ease with a Dubai option. At the end of the day, this could lead to further moves by diamantaires from Antwerp to the Emirates. One Antwerp player even suggested that it may well be in the best national interest for KBC to
In any event, there are many new ideas making the rounds. When viewing this week’s dramatic global crisis in a narrower diamond financing perspective, the news may actually be quite encouraging, if not plain good.
The ABN AMRO ID&JG no longer has to live a schizophrenic life working towards integration with Fortis while simultaneously preparing itself for possible disposal. There is no longer a need for the ID&JG heads to deny that the bank (and thus the diamond financing business) is for sale – as this is public record. They now have the added comfort that the Belgian government will have a major, if not final, say in what will eventually happen to the bank’s diamond financing division. Dutch Minister Wouter Bos can be expected to stand behind his guarantees that the ABN AMRO will only be sold to very cap
This is not a time for anyone in the banking sector to be joyful. There is no liquidity in the financial markets; more bailouts and bank failures seem inevit
One major bank has already informed clients this week that they cannot withdraw money on the basis of a SWIFT-advise, confirming that money is in the process of being credited to their account; they will have to wait until the cash actually reaches the recipient bank. All diamond banks are expected to tighten procedures and lend “by the book.” Risks are going to be minimized. As retailers in the U.S. and other countries are denied their usual credit from their banks, the pressures on supplier credits from the diamond sector are expected to grow. We are heading towards very difficult times from the perspective of avail
So indeed the only good news this week is that the status of the ABN AMRO’s ID&JG has changed from quite an ‘undesired stepchild’ to that of ‘quasi-happy orphan.’ The Benelux governments are expected to ensure that whichever bank or banks will accept ID&JG’s ultimate parenthood will be wealthy and caring. Gradually closing down and stepping out of the diamond financing business has ceased to be an option; the Belgian government could not survive the political backlash this would generate – and it has also no reason whatsoever to approve such a scenario. With governments holding a 49 percent stake in Fortis, the public (including diamantaires) is also
Have a nice weekend.