For RBS or Barclays - there must be a growing sense that the ABN Amro takeover couldn’t have been prosecuted at a worse time.
Barclays may be having trouble with some of the SIV structures it dreamt up, but take a look at ABN Amro. It’s got more than double what either of its would-be owners has committed to conduit credit lines:
Conduits will inevitably draw down those credit lines in the coming weeks as they fail to roll over their maturing commercial paper. And while banks typically only provide liquidity facilities equal to the peak 15-day outflow of maturing CP for straightforward SIVs, for conduits (SIVs run for and by the banks) banks are liable to fund 100 per cent of CP liabilities.
Assuming that commercial paper markets stay gummed up then - it is not at all far fetched to imagine banks being tapped to pay off the full extent of their conduits’ debts.
The damage that will cause will be reflected in the banks’ tier one capital ratios, which are the essential measure of a bank’s health. According to a report from from independent rating agency CreditSights, ABN Amro could see a 172bp fall in its tier 1 ratio to 6.45 per cent:
And given that ABN’s suitors are suffering too, a takeover would depress those ratios further. With a large - if not total - drawdown on credit facilities a possibility, the banks’ own tier 1 ratio predictions post-takeover certainly look wanting:
The rating agencies have already said they think the banks’ ratios are stretched as they are, so a further weakening will definately have the rating agencies worried, says CreditSights. Think downgrade.
Little wonder then, that Bob Diamond seems to be getting cold feet.
