Merger Pain and Gain

So many people have commented now on the Barclays-ABN thing. All are focusing on the synergies that the group will gain from being in the top four banks in the world. And I’d be lying if I said that all of us in the financial services industry (both on the customer and vendor side) aren’t sitting here wondering what this might mean for our own businesses.

The new Barclays is so large that it will have scale advantages that no-one else based in Europe can match. They’ll be a fearsome competitor.

But synergies come at a price.In this case, there are some fairly substantial things that have to happen before any of them begin to show up.

Firstly, there is the somewhat surprising news that the new corporate headquarters of the group will be in Amsterdam. Given that this is a merger, that suggests to me that there’s going to be quite a bit of argy-bargy between the various corporate staffs involved. Over at Canary Wharf in London, there must be rather a lot of soul searching going on: presumably, "synergies" will mean that there are "redundancies". More here than in Amsterdam, I’d expect, since the corporate head office is migrating. That will be very, very distracting to the group in the UK, and I can’t help but think that the ABNers across the Channel must also be wondering, and worrying.

It is also inevitable that there’ll be consolidation of processes and systems. When Santander took over Abbey, there was ever-so-much pain involved with their rip-and-replace approach. Admittedly, that integration was a successful one in the end. The ABN-Barclays merger is quite a bit bigger, however, and I can’t imagine that rip-and-replace can possibly work without derailing one, or both businesses. So there will have to be an organic integration process, one that will take time, and be painful for all involved.

Lastly, although consensus is that these two businesses are highly complementary, they have, nonetheless been pursuing strategic agendas which will now have to be integrated in some fashion. That is hardly going to be a simple task, and the fact that the two sides are so evenly matched in present-day scale will make the task of reconciling them even more difficult.

So my prognostication is that Barclays and ABN will be fairly self-absorbed for a while. It’s inevitable that their attention is going to be internally focused while they work this out, and that will result in an innovation gap some time down the line. That’s because their current and under-development initiatives will go out the door, but nothing new will be started for a while. It’ll take a while for the revamped entity to get up to speed with itself.

That gap is a competitive opportunity into which clever players – both vendors and other banks – will be able to slot themselves.

10 Responses to“Merger Pain and Gain”

  1. April 26, 2007 at 2:53 am #

    Nice to see you are still around James. Perceptive comments … Might I add there is the whole, how do we say this nicely, [and as a Scotsman, I say this with the utmost admiration for Holland] the ‘Dutch view’ on things, vs Barclays polite English approach. The move to Amsterdam was mentioned in the original rumour a few weeks ago, and that is totally perplexing to me. Surely it can’t be cost per sq ft issue?

  2. April 26, 2007 at 9:35 am #

    Hi colin,
    Yes, I’m still around, just settling in here. It’s been a whirl.
    I can’t agree more with your comment on the cultural fit issues that might arise with any proposed merger. It might not be quite oil and water, but having worked for a Dutch company, I know first hand there are certainly sensitivies that one must accomodate.

  3. David Hannam
    April 26, 2007 at 2:42 pm #

    Having been through a UK banking merger (actually a complete takeover), it was fascinating to watch the cancellation of our innovation projects (mobile banking was one)by the incoming team.
    One man’s innovation is another man’s discretionary budget to claim as a saving….

  4. April 26, 2007 at 4:18 pm #

    The Barclays-ABN merger? Did you mean RBS-ABN? 🙂 I will say this, regardless of which way the merger falls: I’ve yet to see a big bank merger (here in the US, anyway) that has delivered the promised synergies on the retail side of the business. Commercial and institutional, yes — but retail, no.
    Hope the new job is treating you well. What have you innovated so far?

  5. April 28, 2007 at 11:16 am #

    Hi David,
    Thanks for your insight, and I agree that newcomers too often have a “not-invented-here” issue with the incumbents. It’s a pity really, but probably good for the rest of us.

  6. April 28, 2007 at 11:19 am #

    Nice to hear from you! I think what I mean is the ABN-InsertLatestBuyer merger 🙂
    New role is treating me well, thankyou, but as you can see from the lack of activity here, I’ve been a bit swamped. Am presently on day 13, and am going to stop counting on day 14…
    There is much innovation going on in the group, and I don’t even nearly have a handle on it all yet. But what I can say is this: I am *thrilled* with the committment that the group has to doing new things, and that’s going to make my life – and that of my team – much, much easier.
    When we get a bit more advanced with some of our initiatives, I’ll probably share them here.
    In the meantime, I’ve got lots to write about, so thanks for sticking around while I get my act together.

  7. May 2, 2007 at 11:38 pm #

    A good commentary on the merger situation.
    But, I think this activity comes at a time when European banks need to be looking at the impact on their bottom lines of the new SEPA/PSD frameworks. They will be taking revenue out of all banks during the next 2-3 years and they may be less well positioned to innovate on product offerings to their customers on the basis of SEPA if they are concentrating on integrating/rip-replacing payments infrastructures.
    The smaller guys will have to watch HSBC, but more mergers will likely happen as costs of operations get driven down and out due to legislation.

  8. May 3, 2007 at 7:32 am #

    Thanks for your remarks Sailesh. What do you mean by “cost of operations gets driven down and out due to legislation”? In my experience, legislation adds, rather than removes, cost.
    Perhaps you refer to SEPA and the fact that some fee revenue streams will be reduced?
    Thanks for reading.

  9. May 4, 2007 at 12:35 am #

    Just so. The banks are going to have to invest in the technology for SEPA and have for Faster Payments, to comply, but will see their revenues falling during 2008 as customers and corporates move to the new instruments.
    Banks with agility, product innovation and size that will presumably create value, with mergers becoming more common to remove the weaker players. But the resulting distraction from day2day operational efficiency and innovation could create a less than virtuous cycle in banking, and uncertainty in the stock prices.
    It will interesting to see what happens to Barclays if it fails to take over ABN, and how these banks are going to pay for these mergers and make the promised savings…

  10. Manish Raghuvanshi
    June 9, 2007 at 9:08 am #

    Merging steel companies or IT companies is not new, but when we talk about bank getting merged its not very common, it brings along a lot of attitude-money power; ABN and barclays both are very strong in it; which already has led to lot of friction.
    Will the merger eventually happens between them or anyone still remains a big question which will only be answered when it turns into reality.

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