It seems that in finance, as well as boring old things like manufacturing, the world is increasingly horizontal.
Thomas Friedman famously followed the ordering, manufacturing, construction and distribution of his Dell laptop as the basis for his modern economic classic, The World is Flat, A Brief History of the Twenty-First Century.
Perhaps the US columnist might now rustle-up a sequel, because if the latest twist in the ABN Amro saga is anything to go by, Western banks are now getting the “flat” treatment, with the components of what promises to be the biggest banking merger on the planet now being put together in all corners of the globe.
In raising its offer for ABN to €67.5bn, Barclays has struck a “strategic partnership ” with the state-owned China Development Bank and is also welcoming the Singapore state investment vehicle in as a major shareholder. The Chinese and Singaporeans are together buying €3.6bn of new Barclays stock and will subscribe for a further €9.8bn if Barclays completes its Dutch takeover.
While some €2.5bn of this is subject to clawback by existing Barlcays shareholders who might want to exercise their rights to the new shares, the British bank is also launching a share buyback — offering to purchase up to €3.6bn of existing stock.
The effect? If Barclays is able to make its ABN offer stick, the bank will be able to offer €24.8bn in cash. If not, Barclays will nevertheless have a chance to churn its shareholder base — hopefully buying out some of those pesky anti-merger shareholders in the process.
All of which is rather neat — even if it ends up being too little and too late. Barclays headline price of €67.5bn is still €3.5bn shy of the RBS consortium offer, which comprises of 90 per cent-odd cash.
Still, the fact is that in its moment of need Barclays turned east rather than west, following the example of buyout group Blackstone, which brought in the Chinese as a pre-float investor ahead of its recent Wall St listing. Indeed, Blackstone acted as financial adviser to the China Development Bank on this transaction, suggesting Steve Schwarzman’s diversification plans are proceeding apace.
But look. Unlike the business of actually making things — which moved to China et al years ago, flattening global economics — the world of high finance, we were told, remained notably curvaceous. Developing nations could compete on fierce terms in manufacturing and other low-skilled areas because of their over-whelming advantage on labour costs. But when it came to the high margin game of modern finance — with its reliance on ultra high skills and “rare” infrastructure, like accounting services and a tested legal structure — the business was said to be immune to the equililberalising effects of globalisation.
Yet, even this is not wholly new. Back in 1986, Standard Chartered, when faced with a hostile bid from Lloyds Bank, turned to Singapore’s Tan Sri Khoo, who bought a 5 per cent stake in the target bank. The takeover foiled, Tan Sri Khoo then went on to become a major, long-term shareholder — hoovering up stock as the share price deflated.
Barclays is in a different position, being the predator rather than the prey. But if it fails to get ABN and instead finds itself in the sights of an American major, it might find itself dreaming of a similar outcome.