The Man from Amsterdam

We speak exclusively with the CEO of ABN AMRO, Rijkman Groenink, about the divestment and investment plans for Asia.

Rijkman Groenink is the 55-year old chairman of the managing board of ABN AMRO, a position he has held since May 2000. In his time at the top he has been pushing through a bold new strategy to make the bank more client focused while drastically increasing its returns to shareholders. In Asia, the bank's recent decision to sell its stake in Bank of Asia has raised some eyebrows, given that ABN has stated the region to be key to its future. In this exclusive interview, Groenink addresses the Bank of Asia question as well as giving details of what ABN plans to to with the money it gets from the sale. He also expounds on his vision of the strategies needed to keep together a universal banking model of retail, commerical, investment and private banking.

Why are you selling Bank of Asia?

The Bank of Asia acquisition at the end of last century was part of a strategy to build our retail banking franchises in major metropolitan areas around the globe. At that time Bangkok was selected as a potential growth market. In the review of all this when I came to the chair in 2000, we decided we wanted to concentrate our retail and commercial banking businesses in less places where we would have more market share. So we retained the Netherlands, the US mid west and Brazil. As of that day all other retail and commercial banking franchises were under review, including Bank of Asia.

We have reconsidered our position amongst others based upon the Financial Masterplan of the Thai government and contemplated the consolidation of the Thai financial market. So we either had to grow and declare the Thai market a key market for us in Asia - we could have made that choice. But to do that we would have had to buy one or two more banks to get sustainable and defendable market share. We would also have to weigh that against building in India and Greater China as the two major alternatives. So we have decided to concentrate our efforts in retail and commercial banking on India and Greater China, which automatically means that we have to sell Bank of Asia. And now is the opportune time.

Have the Thai authorities pushed the decision with their Masterplan telling banks to bulk up or get out?

It has. It fact it has greatly influenced our decision taking,

What can you say about who is bidding for the bank and how the sales process is proceeding?

We have admitted three parties to the due dilligence process. .

Has it been a good investment?

It will turn out to be a reasonably good investment. Values have come back and the market value has improved. On a net-net basis we expect to recoup our investment. A week after we bought the bank the baht devalued and while we had mechanisms for protecting the value of the acquisition against that, it did not protect us against the huge losses within the bank itself, which we had to mop up.

So you are leaving one investment in Asia are you entering into any others?

The money we get officially goes back to Amsterdam but I can assure you that in light of the decisions we have already taken, the money will end up back in Asia. We are looking at India and Greater China.

What are you planning in India?

In India we are planning to incorporate our business. Under new regulations we will have the opportunity to have a 74% shareholding in this incorporated business. We will have to sell 26% to a local co-investor - they are lining up to take this stake: Indian capital is very interested to invest in the financial sector.

Will this be a strategic or financial partner or will you sell this to the public?

No we would prefer one financial partner because we want to have full control of that operation. It is now 100% controlled by us as a branch and we would want one financial investor who would ride with us with no guarantees. At some time in the future, we would want to own 100% of this and so we would want to be able to buy it back. The valuation of our Indian businesses today are somewhere between Eur500 million and Eur800 million.

We have been in wholesale banking in India for a number of years having bought the old Hoare Govett business. We started the retail and commercial business a number of years ago and opened branches in Mumbai, Delhi and Madras. That business has grown despite only being able to open one or two new branches a year. The local competition are opening 50 or 60 branches a year. By doing this incorporation, we can move much faster and can open as many branches as we like.

And what are your investment plans for Greater China?

Greater China is under review. There is an Asia Strategy Committee which is an inter business unit committee which covers all our activities in Asia. They are reviewing our existing situation and our strategic options. For wholesale, investment-banking business there is no need for acquisitions as we can grow the business organically. But it is important that we have a coordinated strategy in which we align our wholesale capabilities with our private banking/ asset management businesses and our retail franchises. The committee is working on that.

It looks like we will try to build as fast as we can a mass affluent business on the ground in mainland China. We have built the platforms in Hong Kong and Taiwan, made up of well-trained people and IT systems, and those platforms are available to build up in China. For example the first on the ground operation came with the retail franchise we got for the City of Shanghai. Yesterday I was told that they had it operating in 46 days, with the help of the people from Hong Kong and Taiwan. Our Shanghai city license allows us to pick and choose sub branches within the city limits to build this mass affluent business.

How many more city licenses are you going for?

We are going for another three or four major cities in the next few years.

Is it best to align the retail, wholesale and private client businesses on a local basis or does it have to be done on a regional basis?

We cannot just do it on a local basis because the wholesale businesses work around hubs of products in Singapore, Hong Kong, Australia and Tokyo. When we need those capabilities on the ground we need to draw from the hub or build it up in the country.

How are you cross-generating business for each of the business units (retail, private client/asset management and wholesale)?

For instance we can create derivative products for our private banking and affluent clients from our wholesale business unit, which come from our derivative desks that are based in the hubs.

Can you have a retail business without a wholesale operation and vice versa?

Yes you can but our global position is that wherever we can, we want to leverage the capabilities of the wholesale bank into the retail and private banking franchise. Its what we clearly want to do in Asia.

According to your annual report, in 2003, you made revenues of Eur309 million from your Asian retail and consumer businesses. How profitable were those businesses?

They were profitable for the first time a whole. They were break even in 2002 and loss making before that, due to Bank of Asia and Taiwan. So we turned around both in the last two years and made them profitable. And from a cost of capital perspective it is becoming a quite interesting contribution to the overall earnings of the bank.

What is the future of your ABN AMRO Rothschild JV?

That is a recurring question as many joint ventures do not last an eternity though ours continues to serve a purpose and bring advantages to both joint venture partners. I talk to Davide De Rothschild regularly as he is on our supervisory board and we review future opportunities regularly. We don't see any reason to break up the JV. What we review is whether ECM capabilities are still needed by Rothschild and whether we develop more and more corporate finance advisory business. If that happens it may mean that we have more competition with each other, though up till now we have managed to avoid as Rothschild and ABN AMRO have little overlap of attention.

Your other local JV with Xiangcai Securities in China recently launched its fourth A share fund. How do you see the future of asset management and private client business in the region? It is all localized?

What you saw in the past in emerging markets was that as soon as wealth was accumulated it was moved out of the country and into international private banks and investments. Now the mass affluent and affluent franchises are directed at people with onshore money and no intention of offshoring their wealth. In my view offshoring is a declining business globally. We are targeting clients in these markets who want to keep their money onshore within the banking system. And it is that money which is available for investment in these types of fund businesses.

Is that the main arterial route linking the wholesale and retail parts of the business; coming up with these types of products that appeal to private clients?

Mutual funds go towards retail and private banking business, but asset management also has to service the institutional and wholesale clients. Asset management has this dual position towards both the institutional and wholesale sides of the business.

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