Sir Fred paid a heavy price after deciding he wanted to go Dutch

Published on 23/01/2009 21:21

WHEN Royal Bank of Scotland's takeover of ABN Amro was approved in October 2007, it epitomised Sir Fred Goodwin's uncompromising strategy – success must be bought. In the end, however, the price proved too high.

No other single deal has contributed so much to the ill health RBS finds itself in today.

In the late summer of 2007, it emerged that Barclays had bid to buy ABN, the largest bank in the Netherlands. RBS, determined to throw a spanner in the works of what would have been the largest bank merger in European history, intervened.

Despite warnings the world's money markets were drying up, and despite the run on Northern Rock, it teamed up with Belgium's Fortis and Spain's Banco Santander.

Their rival offer was accepted. It was worth 49 billion, about three times the book value of the Amsterdam bank.

But by the time the deal was concluded, ABN had already sold its Chicago-based LaSalle unit, its most prized asset, to Bank of America, and the credit crunch had hit home.

RBS found itself saddled with an underperforming London investment banking franchise and a few Asian operations. Cumulatively, it left the bank more vulnerable to toxic-structured credit products, in particular US subprime mortgage securities.

For his part, Sir Fred was adamant the ABN takeover was the right decision. "The people who win pay more than the people who don't win," he said the day after the RBS-led consortium emerged victorious.

A chorus of voices disagreed however. Accusations of greed, even megalomania, were directed towards him.

By last April, the fallout from the takeover began to show, when RBS announced it needed to raise 12 billion from shareholders to bolster its finances.

In the year RBS launched its bid for ABN, the bank posted an operating profit of 10.3 billion, the largest ever for a Scottish company. In 2009, it expects to lose 28 billion, with its share price hovering yesterday below 12p. The price of "success" is clear to see.