Citigroup May Be Pondering a Bid for ABN
Global Holdings Would Mesh, but an Approach Is Difficult Given Barclays’s Exclusive Talks

By CARRICK MOLLENKAMP, JASON SINGER and DENNIS K. BERMAN
March 23, 2007; Page C3

A faction within Citigroup Inc. is pushing Chairman and Chief Executive Charles Prince to bid for ABN Amro Holding NV, according to people familiar with the matter.

The Dutch banking giant, based in Amsterdam, announced earlier this week that it is in exclusive talks about being taken over by Barclays PLC of the United Kingdom in a transaction that would value ABN Amro at about $80 billion. That would be the largest banking deal ever, topping the $72.6 billion 1998 merger of Citicorp and Travelers Group Inc. that formed Citigroup, according to Thomson Financial.

An offer by Citigroup could assuage some of the problems that have plagued the world’s largest bank by market value.  But it would be difficult: Since ABN’s negotiations with Barclays are exclusive, any move by Citigroup would have to be unsolicited, and might be considered hostile.

Still, Citigroup has been studying how well ABN would fit as a possible acquisition target, these people said. The two banks have complementary businesses in the U.S. and Latin America, and a deal would give Citigroup a stronger foothold in continental Europe. There also is the possibility that Citigroup could push for part of ABN’s assets, such as Chicagobased LaSalle Bank or Banco ABN Amro Real SA of Brazil, each of which contribute about 17% to ABN’s overall revenue.

Citigroup declined to comment.

Hostile takeover bids in the banking industry are difficult to win, and hostile deals of all stripes are particularly tough in the Netherlands, where companies enjoy many defenses that aren’t allowed elsewhere. The Dutch central bank has already said it would frown on such a situation.

Mr. Prince, who has been focusing recently on an internal-growth strategy, is still trying to earn back investors’ trust after many years of scandal and tumult rocking various corners of Citigroup’s vast empire. Only recently has it ventured back into deal making, with a $14 billion bid for Nikko Cordial Corp. of Japan, in which Citigroup already holds a stake. Citigroup is playing the role of savior since Nikko was rocked by an accounting scandal. Still, Citigroup has been laboring to win over Nikko investors. It has already raised its bid once, by nearly 26%, even though no other bidders have emerged.

ABN Amro has big businesses in Brazil, Holland and Italy. But its large wholesale banking and investment-banking business,
a division that focuses on fixed-income products and is based in London, has been struggling.

Barclays fixed-income division, Barclays Capital, is considered one of the best in the business, one of the few capable of turning around ABN’s operations. Citigroup also has a large fixed-income investment-banking operation, but taking over ABN’s money-losing group would be another management challenge of the sort that has plagued the company in the past.

An acquisition of ABN also would allow Mr. Prince to meet the demands of a number of constituencies, including those inside Citigroup who would like him to bolster its U.S. presence.

At the same time, Mr. Prince has made it a priority to generate 60% of the bank’s revenue from overseas. Currently, Citigroup’s foreign businesses account for 44%, up from 39% in 2004. Mr. Prince also has said that any acquisition must be accretive in the first 12 months.

Over the past year, Citigroup’s stock, which trades on the New York Stock Exchange, is up about 8.5%. That compares with a rise of 10.5% for rival Bank of America Corp.’s share price and an increase of 15% for J.P. Morgan Chase & Co. over the same period. In 4 p.m. trading yesterday, Citigroup’s shares traded down 19 cents to $51.84, giving the company a market value of more than $257 billion.

ABN’s unwieldy global franchise, which has proved difficult for CEO Rijkman Groenink to integrate, could be a better fit for Citigroup, which overlaps with ABN in several countries. ABN’s recent acquisition history dates to the 1970s and the purchase of LaSalle Bank in Chicago. It bought a U.K. corporate broker and banks in the U.S., Hungary, Brazil and Thailand in the 1990s. On top of that, it acquired stakes in several Italian banks in 1998 and 1999.

Analysts who have run the numbers say there is plenty of opportunity. A review of ABN’s 30 international U.S. product lines, including businesses such as LaSalle and private client work, found that 34% of Citigroup’s 51 product lines overlap with 31 of ABN’s products or service groups. The results are similar for HSBC Holdings PLC and J.P. Morgan. Barclays actually offers a more favorable overlap of 42%, according to San Francisco research firm Revere Data LLC.

But the cost-saving and overlap opportunities for Citigroup also are much greater than they are for Barclays. In the U.S., the ownership of LaSalle would bolster Citigroup’s U.S. retail franchise, which lags behind both Bank of America and J.P. Morgan. Barclays has a small card business in the U.S. as well as a growing capital-markets business. But it doesn’t own a retail bank franchise.

Should Citigroup acquire LaSalle, its market share for U.S. deposits would rise to 4.42% from 3.48%, according to research firm SNL Financial.

Citigroup also could take a big step in Brazil, which offers Latin America’s biggest economy by gross domestic product and population. While Citigroup’s emerging-market focus lately has been on Russia and Asia, research firm CreditSights noted in November that Latin America’s demographics offer revenue opportunities in credit cards, consumer banking and private banking.

“We would not be surprised to see Citi complete a major M&A transaction in the region,” the report said. Citigroup appears to have telegraphed its interest in ABN. Almost every major investment bank is now on one side or the other in the Barclays and ABN talks -- with the exception of Mr. Prince’s bank.

That puts Citigroup’s own merger bankers on the sidelines. Those bankers wouldn’t be able to represent other bidders if Citigroup is considering its own bid.