ABN AMRO PROSPECTUS - AN INTERESTING READ

I have just completed a good read of selected parts of the ABN AMRO IPO prospectus published in mid November... it's an interesting read.  ABN was acquired and broken up into pieces by RBS, Fortis and Santander in 2007 which for many heralded the top of the credit markets just before its fall.  RBS and Fortis each went on to require state aid to survive. 

The recent ABN AMRO IPO raised over Euro 3 billion in equity  (its a partial float and will surely lead to further taps) which according to the WSJ valuing the bank at nearly $18 billion. Since trading in the mid Euro18s at November launch, the shares are now sitting comfortably just over Euro 20.   

So what are its plans and changes in the new post crisis world of twister banking or the challenges of managing a bank platform in a post crisis environment? ABN talks of a 10% to 13% ROE target on page 76 and delivers half of its profits in the form of a dividend to investors. I wonder if this is sustainable in today's world of heavy capital and balance sheet regulation versus a business plan centred on domestic banking, selected international banking/trade finance and some wealth management thrown in. The security structure is interesting too... rather than ordinary shares, the depository receipts are issued by a foundation trust which are equity like in normal times. However, the ordinary voting power of these securities can be removed in the case of shareholder activism, hostile take-over and the like. Sounds like the Dutch government becomes a blockholder even once the float is completed in the years ahead.  

I have noticed the list of risk governance mechanics in place which is overseen by a committee of its supervisory board - including validating risk appetite for the business model and a watchful eye on conduct risk. It should be very interesting to watch how the attractive return profile noted above and these new risk governance mechanisms (such as articulation of risk appetite at the board level) will co-exist in the new chapter of ABN AMRO. 

The Netherlands should have a national champion and ABN appears well positioned to resume its role here, but the potential for tension between business mix/return profile and risk appetite constraints may become an interesting dynamic to observe in the years to come.  

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