The Dutch retreat

Muddled messages from Amsterdam have had us all wondering what ABN Amro is up to.

ABN AmroÆs corporate communications division has spent most of the day stressing the Financial TimesÆ story went too far. The story centred on ABN AmroÆs recent æstrategicÆ re-organization which would involve shedding its retail banking operations in Asia. In conversations FinanceAsia has had with ABN AmroÆs head of external relations in Amsterdam, Thanno Massa, it has emerged that the FT may have taken the story a bit far.

ôOur strategic review says we will definitely focus retail banking in Europe, the US and Brazil. Our retail participation in 26 other countries including those in Asia will be reviewed in the next few months. Any outcome is possible. The FT have gone one step ahead and taken it to the most negative conclusion about Asia.ö

Even if the FT has got it right û after all, it met with Rijkman Groenink, the new chairman û it will be a very short-sighted move on the part of the Dutch bank and sends out all sorts of bizarre signals.

After all, this is the self-same retail banking network that ABN Amro has been building with much fanfare for the past two years. With a vast advertising campaign, and substantial acquisitions ABN Amro has built a network of 200 branches and offices in 16 Asian countries that ranks it regionally just behind HSBC, Citibank and Standard Chartered.

This is supposed to be ABN-AmroÆs strategic nest egg for the future.

  • In Thailand, it bought Bank of Asia with 100 branches.
  • In Indonesia, where it first opened in 1826, it has branches in 9 cities.
  • In the Philippines it bought Great Pacific Savings Bank and renamed it ABN Amro Savings Bank. It was rumoured to be looking at buying Urban Bank too.
  • It has three branches in Malaysia.
  • And last year, it bought Bank of AmericaÆs consumer banking businesses in Taiwan, India and Singapore. Indeed, in India it has operations in six major cities and in Taiwan û according to its website û it is the market leader in the credit card business.

What to make of it? A shareholder should give companies credit when they are big enough to say, okay, we made a mistake. We invested in X business seven years ago and it is nowhere near meeting the strategic plan. We are biting the bullet. ThatÆs great management.

But when a company takes a decision to ditch a strategy after copious investment and large amounts of internal energy after only a year and a half, it smacks of desperation and pandering to short-sighted expediency. No shareholder should applaud such a move. There is no honour in it, and it is impossible to gauge whether there is any financial sense in it û as an investment of that magnitude normally takes at least five years to pay off. (Thailand almost certainly falls into that category, as does Indonesia.)

Let us hope the Dutch do not follow the British in the short term stakes by canning their Asian operations. We have become used to the mistakes of British banks û think only of BZWÆs expansion to become a global investment bank before selling its Asian arm to CSFB, and please, please letÆs not mention NatWest. But the British have always suffered from bouts of short-termism. The Dutch have tended to be long haulers.

Now apparently, the ôuniversal bankingö concept is dead, according to new ABN Amro CEO, Rijkman Groenink, as quoted in the FT. Bye-bye retail branches. The future is corporate banking and private banking.

Wealth management û the new vogue concept û does not begin with an office in Amsterdam, and another in Singapore. The next generation of Asian wealth is going to be streamed through a tiered local branch network. That is the lesson which Citibank pioneered and which HSBC has belatedly learned after 150 years.

ThatÆs why Standard Chartered has acquired branch networks in Thailand and India. ThatÆs why HSBC is about to acquire a branch network in Thailand. ThatÆs why Citibank has got into bed with the Fubon Group in Taiwan to secure a 10% market share of the retail market.

Moreover, the retail consumer offers some of the highest quality earnings available to banks, especially as Asians are excellent at repaying mortgages, and have a lower average age than citizens in mature markets.

Meanwhile, corporate banking is going to become ever more competitive and see ever more of its earnings disintermediated by the internet.

The other key point is that now is the best time ever to penetrate these consumer banking markets, as Asians have never been more disaffected with their own local banks and ready to use foreign players who they know are secure and well managed. Combined with a skilled use of the internet, foreign banks will take massive middle class market share in most Asian markets over the next five years.

If ABN Amro does fold its recently-acquired Asian retail banking network, it is great news for HSBC, Citibank and Standard Chartered.

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