A BNP-ABN merger could put the ghosts of the past to rest

The last time they bought ABN Amro, European banking blew up. BNP boss Jean-Laurent Bonnafé has gone after the $10bn Dutch bank and may relive those memories. Cheap action and simpler logic argue for a second chance.

The French bank, of 59,000 million, has indicated to the Dutch Government that it is interested in buying the entity of which The Hague owns 56%. The last group of buyers of ABN, which paid 70,000 million before the crisis of 2008, ended in disgrace. RBS, which led the consortium and took over the wholesale business, needed government support. Monte dei Paschi took over the Italian assets after buying them from a member of the consortium, Santander, and it remains a basket case. Fortis, which overindulged in gobbling up the Dutch unit, was bailed out by the Belgian state and quickly sold to BNP.

It would not be difficult for Bonnafé to overcome such an unhappy record. ABN is cheap: even at a 30% premium, BNP could acquire it for 12.6 billion, or 60% of future tangible book value, roughly the same multiple as the French company itself. Buying a bank for less than the book value of its net assets also generates capital gains—negative goodwill—that can be used to cover merger costs and write off bad debt.

BNP’s presence in the Benelux would help Bonnafé present it as an intra-country merger rather than a cross-border merger, which investors tend to shun for lack of cost savings. BNP has about 250 million annual costs in the Netherlands, and ABN’s combined expenses in Belgium and France are about 300 million, we estimate.

Bonnafé may be able to put excess capital to better use, such as growing its loan portfolio or investing in technology. And it is not at all clear that The Hague is going to give up control of one of its biggest banks, especially after last time. But far from angering the ghosts of past mergers, there’s reason to think Bonnafé could put them to rest.