ABN Amro Holding NV ended weeks of market speculation Tuesday when it said it has agreed to buy some North American portions of ING Group's investment banking unit, ING Barings, for $275 million.
The two Dutch financial companies are looking to restructure their respective business lines.
ING Group is pulling back from investment banking in the United States in the face of stiffer competition. It is rolling ING Barings into ING Europe and laying off 1,000 employees, 200 of them in the United States.
ABN Amro, meanwhile, is looking to shed some in the U.S. units and shore up others.
On Tuesday it said it would acquire ING Barings' prime brokerage, corporate finance, domestic equities, and futures and options businesses in North America. The deal, which is subject to regulatory approval, is expected to close this quarter.
The move would help ABN Amro round out a globally integrated corporate and investment banking services, executives said.
The announcement comes as ABN Amro solicits bids for its European American Bank in New York. The Dutch company is selling the bank to raise money for its planned acquisition of Michigan National Corp. in Farmington Hills, which is designed to boost its presence in the Midwest.
The ING Barings deal brings ABN Amro one step closer to its goal of building up shareholder value through its wholesale client strategy, outlined in November. The banking company said it would reallocate capital to businesses with higher returns, including investment banking, in order to double its shareholder value in four years.
ABN Amro would use internal funds to make the purchase, which would include a goodwill payment of $12 million.
The most coveted portion of ING Barings deal is its prime brokerage, a high-margin business that ING Group acquired in 1997 when it bought the securities firm Furman Selz.
The unit would increase the liquidity ABN Amro could offer to hedge funds, expand its access and insights to capital flows, and give its European stock lending franchise a lift. The company also plans to offer prime brokerage capabilities in Europe and Asia.
ABN Amro has been pushing its way into the United States through acquisitions. In a press statement released Tuesday, the company said it has a "commitment to invest further in the newly integrated business over the next two years."
However, executives said in a conference call Tuesday that any additional purchases would be fill-in deals in areas such as corporate finance, equities, and futures and options.
Patrick Leclerc, an equity analyst with BNP Paribas, said ING Barings employees have been aware for about three months that a deal was about to be struck, and job uncertainty has driven some employees to leave the company and dragged down its value. As a result, "ING's negotiating power was quite weak," he said.
ABN Amro is spending $80 million to $100 million to create a two-year retention pool for key ING Barings employees. One New York employee, who requested anonymity, said this was a positive sign.
However, on Tuesday analysts expressed doubts about ABN Amro's ability to double shareholder value within four years by making bite-size transactions.
James Alexander, an analyst with Commerzbank Securities, said the ING deal is "a modest move forward."
Meanwhile, ABN Amro is expected today to examine offers from North Fork Bancorp, FleetBoston Financial Corp., and possibly another still-unknown competitor for European American Bank. The company is seeking $2 billion for EAB.
ABN Amro's other U.S. operations include LaSalle Bank in Chicago and Standard Federal Bank in Troy, Mich.