Banker's formula: mix of old, new

A visiting Dutch banker tells ROD ORAM that the established players have a running start in the e-economy.

Financial service providers that are purely internet-based will lose out to those established players which successfully combine the best of the new and old economy, according to a senior Dutch investment banker.

``We believe very strongly you have to give advice through the channel the client wants,'' said Rijnhard van Tets, the worldwide chairman of the investment banking division of ABN AMRO, which took over the New Zealand and Australian businesses of BZW of Britain two years ago.

Only full-service banks like ABN AMRO, Mr van Tets argued on a visit to Auckland, can generate the range of products, depth of advice and variety of delivery mechanisms ranging from the internet and telephone to branches to satisfy customers.

Not all big banks will successfully embrace the internet. ``But those that can design products and get their e-offering in place are going to be the winners.''

Some successful internet companies recognise that and are beginning to invest in established financial service providers. One example is the purchase by Charles Schwab, the leading US online stockbroker, of US Trust, ``the ultimate relationship bank.''

Last month, ABN AMRO made its own investment in the other direction. It paid $US62.5 million for a 25 per cent stake in BlueStone Capital, a privately-held US investment bank whose TRADE.COM division is a well-developed internet portal for financial services.

ABN AMRO will use TRADE.COM as the foundation for building the bank's online retail brokerage services around the world. Conversely, ABN AMRO will be the ``anchor bank'' for TRADE.COM in those markets.

This seismic shift in strategy has some parallels in two earlier transformation in the banking industry. First, banks around the world found their traditional lending businesses were becoming commodities, with a consequent drop in profitability.

The solution was to build up investment banking divisions. But they, too, began to suffer margin pressure so the solution was to extend their offer range to include, for example, complex structured finance products.

ABN AMRO's experience in Australia was typical of those trends. It started an investment bank there in 1981 with the aim of helping Australian companies do deals in Europe.

One example was its assistance to Goodman Fielder in making a Dutch acquisition, which became a platform for the food group's European growth.

By the 1990s, the bank's Australian margins were shrinking so it began seeking other products and services. The BZW acquisition was particularly beneficial, for example, for its structured finance skills.

In New Zealand, the BZW purchase put ABN AMRO in the top three investment banks with Credit Suisse First Boston and JB Were. The Dutch bank has, for example, advised the Government on the sale of Contact Energy, is working for Singapore Airlines on building a stake in Air New Zealand and advises Changi Airport of Singapore on its investment in Auckland International Airport.

ABN AMRO is also strong here in institutional share broking, although it is less prominent in private client business.

Mr van Tets said there was plenty of scope for developing ABN AMRO in Australasia but the growth will almost certainly be organic rather than by acquisition. He expressed some concern, however, about changes in pubic policy.

``New Zealand has an excellent record for opening up its economy but the present Government is not convinced of that.''

In contrast, in Europe left-of-centre governments were pursuing policies consistent with those of their right-of-centre predecessors' aim ``to leave as much as possible to the private sector.''

The purchase of BZW Australasia was ABN AMRO's largest Asian investment to date. Since then it has bought businesses such as a bank in Thailand and Bank of America's consumer business in India, Taiwan and Singapore.

Further acquisitions are likely outside Australasia to meet the bank's goal of lifting Asia's contribution to group profits from its current 10 per cent.

To further that strategy, the bank this month appointed Floris Deckers head of its Asian region based in Singapore. Previously he was chief executive of its South and Central American operations for six years.

Acquisitions will also play some role for the bank in those national markets in Europe which are still consolidating into a handful of big players.

In Italy, for example, it will increase its near-10 per cent stake in Banca di Roma when the Government allows it to.

It has missed some deals along the way, however. This month it underbid for Gartmore, the UK fund manager, losing to an American player.

``We'd put in a very fair price but by any rationale they paid a very high price for a beachhead into Europe.''