Barclays Admits RBS Will ’probably’ Win ABN Bid

Bob Diamond, the president of Barclays Bank, conceded today that a rival consortiums offer for ABN Amro will probably beat ours if the RBS group sticks with the present terms of its €70 billion (£48 billion) bid.

Barclays is competing with RBS and its two partners to win control of the Dutch bank.

However, the value of Barclays’ predominantly share-based offer has fallen below the rival bid in recent weeks as the groups share price has lost value amid turbulent credit markets.

Speaking at a bank conference in New York, Mr Diamond, who is also head of Barclays’ investment bank, said that there was also risk associated with the RBS offer, given the market conditions.

He said: The bad news is if the consortium still wants to pay that price, if it’s comfortable with the risks on the balance sheet during the turmoil, if they can raise that money in the market and if the regulators are going to allow ... this kind of complex transaction, then that price will probably beat ours.

He added: But there are a lot of ifs between now and then. We have to take into context that the market environment has changed.

Do we still want ABN? Yes,” he told the Lehman Brothers conference.

Speculation has begun to circulate over whether RBS, whose deal was agreed at the height of the M&A boom, may try to lower its €38-a-share bid, which is trading at a significant premium to the ABN share price.

Sources have said that it is possible for the consortium, which also includes the Belgian-Dutch Fortis and Santander, of Spain, to invoke a so-called material adverse change clause (MAC) to lower its price, although they said that so far there had been no discussions to do so.

The sources said that the RBS group will make a decision closer to October 5, the date on which its offer is due to expire.

Barclays offer is due to close on October 4.

Banks such as Barclays, RBS and the big US bulge bracket investment banks have come under increasing pressure in recent weeks to disclose their exposure to US sub-prime mortgages and leveraged loans linked to private equity deals.

Mr Diamond said that Barclays Capital, the arm of Barclays behind several investment vehicles hit hard by the credit crunch, still managed to post a profit last month.

Barclays Capital traded profitably in August 2007, after full allocation of costs and the mark to market of all positions. This was on the back of a profitable July. Year to date profits are well ahead of 2006, he said, referring to the banks decision to value the assets sitting on its balance sheet at current reduced market prices.

Barclays Capital, the investment banking arm of Barclays, has been under scrutiny recently after the abrupt resignation of Edward Cahill, the head of its European collateralised debt obligations (CDOs) unit, in August.

Mr Cahill structured several so-called SIV-lite investment vehicles that were unable to meet their short-term financing commitments after spooked investors in the commercial paper markets refused to roll over.

Several reports said BarCap could lose as much as several hundred million pounds as a result of the SIVs running into trouble, although BarCap has said that its actual losses should amount to no more than £75 million.

The bank has since helped to restructure two of the SIV-lite vehicles.

Barclays has also been in the spotlight after it emerged that the bank had borrowed £1.6 billion of emergency funds from the Bank of Englands credit facility, which charges punitive rates of interest of 6.75 per cent.

Barclays later blamed its move on technical glitches with the overnight funds clearance system and said that it had no problems raising funds.

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