The RBS ABN Amro Challenge
The ABN Amro takeover by the consortium of banks consisting of Royal Bank of Scotland (RBS); Fortis and Santander has resulted in four projects.
The Fortis and Santander Integration projects can be very loosely called “Retail” Bank integrations; involving large numbers of individual customers and extensive branch networks with basic banking products. The RBS integration is very much a “wholesale” bank integration. RBS is acquiring the Global clients Business Unit, and the European Business Unit (minus the retail banks in Europe). It is also acquiring a product capability in the form of the Global Transaction Banking Business Unit (Transaction here means payments and trade services). All of these business units are aimed at large or very large corporations. The aim will be to merge the business units into RBS’s investment banking arm (called Global Banking and Markets). This will be the first major wholesale bank integration in Europe since Deutsche Bank merged with Banker’s Trust, quite some time ago now.
We will neither discuss the separation nor the Fortis & Santander projects further. We will focus on the RBS Integration project and its 3 stages;
- Part A – Risk Management
- Part B – Migration or Integration of Products
- Part C – The End State
Part A – Risk Management
The diagram below illustrates the starting position for the integration using the models from the Anatomy of an Investment Bank.
Position at the start of Integration
The single most important thing from the regulator’s point of view is to very rapidly join up the risk management processes and systems. They want to be assured that the newly merged entity is adequately capitalised and does not have undue concentration or market risks.
The diagram above shows how this might be achieved given the assumption that RBS, as the acquiring bank, will be the systems platform to be used. Essentially there will have to be a feed between the ABN risk systems to the RBS ones where the consolidation will take place. In a similar period a feed from the ABN Amro finance system to the RBS ones will also be needed to create the consolidated financial accounts (for statutory and tax reporting).
Part B – Migration or Integration of Products
The next phase is the guts of the integration from a systems and operations point of view. The diagram shows an arbitrary position halfway through the integration process.
Some way through Integration
The aim is to consolidate the product systems down to one of each kind – i.e. one FX dealers platform, one equities platform, one bonds platform and so on, generally the Acquiring Bank’s platform. Hence the RBS product systems are likely to be the target platform. However, it is probable that in at least some areas the ABN may have a capability that the acquiring bank will want to keep (the example used in the diagram is the equities platform).
There are two types of project during the phase;
Part C – The End State
The diagram below illustrates the system setup after the overall integration process has finished.
The End State
In comparison with the position at start of integration diagram shown at the start of this article it is clear that a lot of de-duplication has occurred. This should reduce the IT and operations and support costs and enable economies of scale to be achieved. The overall integration project will have been mostly about bringing ABN clients into the RBS product systems. Occasionally some part of the ABN capability will be added to the overall model. This will then be available to RBS clients as well. A major benefit of this “single systems and operations platform” for many brands/banks approach is that regulatory changes such as Basel 2 or MIFID only have to be implemented once hence avoiding costs. The downside is that with lots of brands/banks sharing common IT, change can be very hard; but that is the preferred strategy for RBS integrations.”