Considering so many other behemoths like Lehman went down, the fall of ABN AMRO becomes perhaps less exciting one to read about. But being in Netherlands and specially being ABN AMRO customer makes me specially interested in understanding how it happened.
Jai Arjun Singh says in his post about Wolf Hall 'When we learn about history primarily through cold details set out “objectively” in textbooks, it’s possible to lose sight of the fact that the distant events we take for granted – events that now appear set in stone, almost as if they could have unfolded in no other way – were the accumulated products of the personalities, life experiences and whimsies of human beings who happened to be in a certain place at a certain time: real people with ambitions, weaknesses, dilemmas, biases and prejudices of their own.' I think the story of ABN AMRO is no exception.
This book that describes the people, their egos and the events that they led which eventually resulted in demise of the Dutch financial institution. MORE...
Sunday, September 05, 2010
The Perfect Prey: The Fall of ABN AMRO, or What Went Wrong in the Banking Industry ~ Jeroen Smit
Considering so many other behemoths like Lehman went down, the fall of ABN AMRO becomes perhaps less exciting one to read about. But being in Netherlands and specially being ABN AMRO customer makes me specially interested in understanding how it happened.
Jai Arjun Singh says in his post about Wolf Hall 'When we learn about history primarily through cold details set out “objectively” in textbooks, it’s possible to lose sight of the fact that the distant events we take for granted – events that now appear set in stone, almost as if they could have unfolded in no other way – were the accumulated products of the personalities, life experiences and whimsies of human beings who happened to be in a certain place at a certain time: real people with ambitions, weaknesses, dilemmas, biases and prejudices of their own.' I think the story of ABN AMRO is no exception.
This book that describes the people, their egos and the events that they led which eventually resulted in demise of the Dutch financial institution. At first the book struck me as providing rather too many details about too distant history, which I thought would not be related to the final event. But slowly, those details got me into the environs, which made me appreciate the clash of the personalities and meaning behind events. Unlike Barbarians, which was mostly focussed on the period & process of LBO process, this book was more focussed on how ABN got to the stage where it became target for acquisition, actual details of how Barkley or the Consortium (RBS, Banco Santander, Fortis) valued or structured the deals are not provided.
A very good summary of the events described in book from the moment Groenink took over till 2004 can be found here. From there till 2007, when the bank was acquired by the consortium is well documented in so many articles, including Wikipedia.
The hunter metaphor (or analogy or is it simile or ...) is used to depict the personality of Rijkman Groenink, the last CEO of ABN AMRO (AA) and the organization that he led for 7 years. By the end of the book there is too much of this hunter became the hunted language- first when AA has been acquired by the Consortium, and then due to financial crisis even the 3 constituent banks of the Consortium, specially Fortis, get into trouble. The start of the book is from one hunting incident years back, when Groenink gets hurt seriously-so bad that doctors say only 1 out of 10 such victims get back to active life. But Groenink is made of different mettle, almost immediately he gets back to office with a resolve that never in his professional life he would complain about physical pain/ difficulty arising from the injuries. He is one macho AMRO guy.
AMRO and ABN were 2 separate banks. As per Jeroen Smit ABN people were largely good hearted, laid-back bankers, while AMRO guys were aggressive bankers, who considered themselves better. From the moment of merger, somewhere in 1991 the chairmen of the 2 banks led the combination to become a single bank, arising from the merge of equals. After these two, Jan Kalffe took reign and then handed over to Groenink.
I think seeds of the eventual demise of the bank were sown even at this stage, where still the people from 2 parent organizations were not fully working together- the communication within the board was not seamless. Towards the end of the book Smit tells how ABN people were surprised to know that even after roughly 20 years of the merge, there was still separate club of AMRO managers active.
But when Groenink too over, he got seven years before bank came to brink of losing its independence. In that time, he could have saved the bank, and could have made it into world's top ten. In fact, Groenink promised to make it among the top 5 in its peer group. But time after time, he and his team failed to form a good strategy, let alone to execute it.
- First, they formed a special group to form strategy (ARROW), which under time-pressure formulated the strategy for such a behemoth without waiting for complete information. I can't believe they could do that, but they did. And later when they got the complete picture, after a delay of more than a year, they corrected course but again towards the other extreme.
- The ARROW and later few more such highly publicized initiatives and reorganizations were either not based on fully baked thought process, or were not brought to their logical conclusion before being replaced by the next initiative. In this matter, ABN AMRO did exactly as Jim Collins says 'comparison' companies do.
- To grow the bank, Groenink constantly kept looking for next acquisition targets. Internally his own bank was not performing well, the efficiency ratios were pathetic, but he left that to his team and didn't follow-up on that aggressively.
- They kept on investing in the corporate banking division in the hope that they would be counted among the big IBanks. Perhaps the aura of wall-street kept giving them motivation to continue investing in expensive bankers, who didn't have big enough market in NL to justify so big salaries. But first, Groenink & board didn't put effective stop to this, and then the board and the supervisory-board didn't want to fire or limit ambitions of chief of Ibanking group- Jiskot, as he was the only one to provide enough counterweight in managing- board to Groenink. What a logic to keep paying some highly paid guy.
- Concept of managing by Value (Net profit- cost of capital) was indeed a very positive (and radical at that time) change. But it requires a big change in mindset, and to make all understand and buy the idea is a mammoth task. Management should have spent a lot of time on that, employing a consulting agency wouldn't be sufficient to make it happen.
- The new head of the supervisory governing body came to know only at the end that finally he had responsibility and powers to reign in Groenink & the managing board.
- And finally, and mainly (as per the limited understanding that a book can provide about such a complex event) the relationship/ communication between the various board members and the management of ABN AMRO in general was not conducive to bring out best solutions for tactical problems and best strategy for the long term. The personality of Groenink was not such that he would lead the team into one single direction with unity.
But overall, I am in sympathy with Groenink. Surely he didn't succeed in making ABN AMRO among the top-five, but in the end he got the best value for the shareholders. Though personally the acquisition by Consortium was in his best interest, he kept pushing for the merger with Barclays. Still, when going out he got some 20+ million Euros, thats something everyone on the Net keeps focussing about. They don't seem to get that he got the best deal for the shareholders in the end- 14+% CAGR over 7 years of his tenure!
Jai Arjun Singh says in his post about Wolf Hall 'When we learn about history primarily through cold details set out “objectively” in textbooks, it’s possible to lose sight of the fact that the distant events we take for granted – events that now appear set in stone, almost as if they could have unfolded in no other way – were the accumulated products of the personalities, life experiences and whimsies of human beings who happened to be in a certain place at a certain time: real people with ambitions, weaknesses, dilemmas, biases and prejudices of their own.' I think the story of ABN AMRO is no exception.
This book that describes the people, their egos and the events that they led which eventually resulted in demise of the Dutch financial institution. At first the book struck me as providing rather too many details about too distant history, which I thought would not be related to the final event. But slowly, those details got me into the environs, which made me appreciate the clash of the personalities and meaning behind events. Unlike Barbarians, which was mostly focussed on the period & process of LBO process, this book was more focussed on how ABN got to the stage where it became target for acquisition, actual details of how Barkley or the Consortium (RBS, Banco Santander, Fortis) valued or structured the deals are not provided.
A very good summary of the events described in book from the moment Groenink took over till 2004 can be found here. From there till 2007, when the bank was acquired by the consortium is well documented in so many articles, including Wikipedia.
The hunter metaphor (or analogy or is it simile or ...) is used to depict the personality of Rijkman Groenink, the last CEO of ABN AMRO (AA) and the organization that he led for 7 years. By the end of the book there is too much of this hunter became the hunted language- first when AA has been acquired by the Consortium, and then due to financial crisis even the 3 constituent banks of the Consortium, specially Fortis, get into trouble. The start of the book is from one hunting incident years back, when Groenink gets hurt seriously-so bad that doctors say only 1 out of 10 such victims get back to active life. But Groenink is made of different mettle, almost immediately he gets back to office with a resolve that never in his professional life he would complain about physical pain/ difficulty arising from the injuries. He is one macho AMRO guy.
AMRO and ABN were 2 separate banks. As per Jeroen Smit ABN people were largely good hearted, laid-back bankers, while AMRO guys were aggressive bankers, who considered themselves better. From the moment of merger, somewhere in 1991 the chairmen of the 2 banks led the combination to become a single bank, arising from the merge of equals. After these two, Jan Kalffe took reign and then handed over to Groenink.
I think seeds of the eventual demise of the bank were sown even at this stage, where still the people from 2 parent organizations were not fully working together- the communication within the board was not seamless. Towards the end of the book Smit tells how ABN people were surprised to know that even after roughly 20 years of the merge, there was still separate club of AMRO managers active.
But when Groenink too over, he got seven years before bank came to brink of losing its independence. In that time, he could have saved the bank, and could have made it into world's top ten. In fact, Groenink promised to make it among the top 5 in its peer group. But time after time, he and his team failed to form a good strategy, let alone to execute it.
- First, they formed a special group to form strategy (ARROW), which under time-pressure formulated the strategy for such a behemoth without waiting for complete information. I can't believe they could do that, but they did. And later when they got the complete picture, after a delay of more than a year, they corrected course but again towards the other extreme.
- The ARROW and later few more such highly publicized initiatives and reorganizations were either not based on fully baked thought process, or were not brought to their logical conclusion before being replaced by the next initiative. In this matter, ABN AMRO did exactly as Jim Collins says 'comparison' companies do.
- To grow the bank, Groenink constantly kept looking for next acquisition targets. Internally his own bank was not performing well, the efficiency ratios were pathetic, but he left that to his team and didn't follow-up on that aggressively.
- They kept on investing in the corporate banking division in the hope that they would be counted among the big IBanks. Perhaps the aura of wall-street kept giving them motivation to continue investing in expensive bankers, who didn't have big enough market in NL to justify so big salaries. But first, Groenink & board didn't put effective stop to this, and then the board and the supervisory-board didn't want to fire or limit ambitions of chief of Ibanking group- Jiskot, as he was the only one to provide enough counterweight in managing- board to Groenink. What a logic to keep paying some highly paid guy.
- Concept of managing by Value (Net profit- cost of capital) was indeed a very positive (and radical at that time) change. But it requires a big change in mindset, and to make all understand and buy the idea is a mammoth task. Management should have spent a lot of time on that, employing a consulting agency wouldn't be sufficient to make it happen.
- The new head of the supervisory governing body came to know only at the end that finally he had responsibility and powers to reign in Groenink & the managing board.
- And finally, and mainly (as per the limited understanding that a book can provide about such a complex event) the relationship/ communication between the various board members and the management of ABN AMRO in general was not conducive to bring out best solutions for tactical problems and best strategy for the long term. The personality of Groenink was not such that he would lead the team into one single direction with unity.
But overall, I am in sympathy with Groenink. Surely he didn't succeed in making ABN AMRO among the top-five, but in the end he got the best value for the shareholders. Though personally the acquisition by Consortium was in his best interest, he kept pushing for the merger with Barclays. Still, when going out he got some 20+ million Euros, thats something everyone on the Net keeps focussing about. They don't seem to get that he got the best deal for the shareholders in the end- 14+% CAGR over 7 years of his tenure!
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