RBS is conducting an unprecedented operation. Can it hold its nerve as the heat rises on its risky ABN carve-up?
By Colin Donald in Amsterdam

AT the ABN Amro head office in Zuidas - Amsterdam's futuristic new business hub on the southern outskirts - lights burn long into the night. The area was planned in the 1990s around this monument to Dutch financial power. That centrepiece has now fallen. The building is now field headquarters to a Scottish-led invasion force.

Right now the ABN building is occupied by Mark Fisher, previously the Royal Bank of Scotland's (RBS) back-office wizard, picked by RBS boss Sir Fred Goodwin as interim chairman of the ABN holding group on November 1 last year. He and RBS's crack integration team now occupy the plushest offices.

Eventually the building will be be inherited by Fortis, the Benelux lender which, along with RBS and the Spanish Banco Santander, formed the hostile consortium that bought ABN Amro for £49 billion last October. The biggest bank deal in history - and arguably the worst-timed - it trumped a friendlier £43.7bn bid by RBS's UK rival Barclays.

In the midst of the worst financial turmoil seen for a generation, Fisher and co are awaiting permission from the Dutch central bank to divide the spoils of the Dutch giant in pursuit of a promised £1.2bn of cost savings.

Before they do, Goodwin will this month announce RBS as the first Scottish company (and second UK bank) to earn more than £10bn in annual profits. Then come the details that will at last make retrospective sense of this audacious operation.

RBS-watchers have been fully occupied in recent weeks hypothesising on the bank's bombed-out share price and speculating on its degree of buyer's remorse. The market has dwelt painfully on the Scottish lender's threatened capital ratios and the chances of a rights issue - slim, by most reckonings.

Details of the break-up will allow RBS to direct attention to Asia, where ABN assets give their inheritor instant scale in hard-to-penetrate markets. RBS, now number one in Europe for corporate banking, has become number five in Asia Pacific (excluding Japan) for corporate banking and has entered the top five in the world for transactional banking.

How will the bank's takeover of a modern Dutch trading empire play out in practice? And if and when it weathers the current storm, how much benefit might the Asian assets bring in the coming age of decoupling, when Asian markets start to set the global pace irrespective of US subprime lenders?

Fisher, 47, who has moved to Amsterdam for three years, is the former NatWest executive whose skill at integrating that bank with RBS has made him an industry legend. His genius is for "working the back end", finding synergies and creating efficiencies in the once unglamorous, now increasingly central banking function of back-office operations.

This time he has a more delicate diplomatic task, one never before attempted anywhere. It must be conducted in front of an audience of regulators, employees, works councils (corporate stakeholders groups) and massed ranks of market sceptics. The surrounding market conditions could hardly be worse. Inevitably, employees of Barclays crow loudly that they are glad they lost. Much rides on the steadiness of Fisher's hand as the temperature rises.

Open hostilities over ABN ceased last October, but there are still no cheerleaders in Amsterdam or The Hague for the break-up of their flagship financial brand. ABN is omnipresent in the Netherlands, from the arrivals hall at Schiphol airport to the building opposite the Royal Palace in Amsterdam's Dam Square. It was inconceivable that it would fall out of Dutch control.

One British ABN equities trader, senior enough to merit a one-to-one briefing on the integration from RBS head of global markets and heir apparent Johnny Cameron ("completely pragmatic, enormously intelligent"), says: "I sat next to the chairman of a Dutch sports manufacturing company the other week and he was practically in tears about ABN. The sense of national loss is enormous."

From the cool, blow-your-bonus bars of Zuidhas to the panelled chambers of the Amsterdam stock exchange, Goodwin inspires grudging Dutch respect. The man Fisher has usurped on ABN's top floor, Rijkman Groenink - said to have pocketed more than 26m (£19.5m) before retiring to a converted windmill near Hilversum - has become a national hate figure, "the man who lost ABN Amro".

Socially liberal, the Dutch are notoriously tough in business matters, as the board of Scottish & Newcastle will attest after Heinkeken's recent joint ambush with Carlsberg. There is a strong aversion here to rewards for failure, and there is a violent backlash against the complacent mismanagement that made ABN so vulnerable.

"We in the Netherlands admire the fact that Fred Goodwin is so ambitious and has built an empire," says one official of the Amsterdam stock exchange, speaking anonymously. "Groenink was brought in in 2000 to shake up ABN's old-boy traditions but missed his own targets repeatedly and just kept changing them. Why was he allowed to do it? We see Goodwin as a man who doesn't break his promises. He's a good banker."

With their own jobs now on the line, few ABN personnel have much good to say about the pre-takeover management. One source on ABN's US and European equities trading department - a key addition to the RBS portfolio - told the Sunday Herald of a cushy, cost-heavy culture rife with "cultural mismatches" between Dutch and non-Dutch personnel. On the eve of the bid, ABN's cost-income ratio was 89%, compared with RBS's 42%.

"It is hard to think of many businesses still solvent that were run as badly as ABN Amro. Almost anything would be an improvement," he says.

"The difference between a well- managed investment bank and a badly run one is your ability to manage and flex margins anticipate downturns before they happen. Morgan Stanley, UBS, they are capable of that. That's how you manage a growth business."

"The ABN guys only understood that falling revenues needed to result in falling costs. It was utterly reactive. As a manager you were constantly trying to do more with less. It felt like someone was constantly punching your forehead."

The funeral rites of their best-known banking brand present the Netherlands with a dilemma. Amsterdam, home of the world's first stock exchange (founded 1602), is fighting for its life as a European financial hub. Consolidation is likely to shrink the number of major bourses by up to two-thirds within 10 or 15 years.

The loss of ABN Amro does not help, though the Netherlands still has a global banking brand in ING. That bank was an early potential suitor for ABN before the ailing partner's shares were priced out of range by rumours.

Officially, the Dutch celebrate the openness of their economy, drawing implicit contrasts with France's refusal even to contemplate a non-French buyer for Société Générale. There were protectionist wobbles from Dutch politicians when the consortium bid was first unleashed. But because ABN and the Dutch government had forced Italy to abandon attempts to protect the Padua-based bank Antonveneta from its own aggression, such a position was morally untenable.

"ABN fell into the grave it had dug for Antonveneta," says an official at the Amsterdam bourse. Now the central De Nederlandsche Bank (DNB), and the markets regulator Autoriteit Financiële Markten (AFM) are alert bystanders rather than obstructive agents.

"You can look at the ABN takeover and view it as a loss, or see it as the Dutch making such magnificent companies that Fortis-RBS and Santander have decided to invest in the Netherlands," spins Akkie Landsberg, director of the Holland Financial Centre. HFC is a public-private strategy group designed to safeguard Amsterdam's future.

She brushes off inquiries about Dutch sentiment as out-of-date and irrelevant: "The focus on the domicile of companies is not appropriate. The average Dutch multinational, the likes of Philips, Unilever or Nielsen, has 80-90% of its business abroad. Their boards are usually made up of an international team.

"What matters to the Netherlands is the wellbeing of the people who live in the Netherlands. RBS and its partners will likely employ thousands of people here, and in that respect RBS will be welcome as a partly Dutch company. We live in a globalised world, where the whole concept of the nationality of a company is going to disappear."

But if that is the case, why are the Dutch shoring up the regulatory dykes against shareholder activism? It looks like a strenuous effort to prevent a repeat of the ABN story.

THE law is being changed to prevent shareholders with a holding of less than 3% tabling AGM agenda items. And the Dutch corporate governance code is being amended to thwart hostile bidders, increasing to 180 days the amount of time before an AGM that shareholders' motions must be tabled.

Rients Abma of the Dutch institutional investors group Eumedion complains that the changes are "symbolic politics" and claims they will "not lead to better relations between companies and shareholders, just add more administrative burdens on shareholders".

Next week marks exactly a year since the Children's Investment Fund - a 1% (worth £50m) hedge-fund investor in ABN Amro - sent an aggressive letter to the board demanding discussion of the bank's feeble growth at the bank's AGM.

The attack, and the morbid surge in the bank's share price it triggered, put the first drops of ABN blood in the water. These were sensed by Goodwin's hunter's nostrils in faraway Edinburgh. In fact, Goodwin had been in discussions with Groenink about ABN's future since 2005. In 2006, he is said to have reassured Groenink that cross-border bank mergers were "still some way away". But not that far away, as it turned out.

On April 27, four days after ABN announced a recommended offer, RBS struck, along with Fortis and its old Spanish ally Santander, stunning the world with their 38.40 per share offer.

"It was a complete shock," recalls Rients Abma. "Never before in the Netherlands had a financial conglomerate been split up by hostile bidders."

The rest is banking and business history. Groenink scrambled to bounce the market - and ABN Amro staff - into accepting a cosier Anglo-Dutch Shell-style merger with Barclays, retaining the brand and the HQ in Amsterdam.

The consortium held its nerve in the teeth of Dutch political outrage, regulatory foot-dragging, legal challenges and the spoiling tactic of the sale of ABN's Chicagoan LaSalle Bank to Bank of America. And then came the biggest credit contraction in a generation, which devastated the banking sector and made nonsense of the original valuation. RBS has lost around £20bn in value since the crisis started last summer.

"RBS wins by overpaying," was the sour eventual headline on analysts' notes, a charge that Goodwin's team have dismissed, despite the bank's share price sliding to around 50% of its pre-bid value. RBS has played its usual straight bat about the supposedly threatened capital levels. This month's detailing of the nature and timetable of the carve-up is the first chance to change the narrative.

Key to that is detailing the usurpation of ABN's painstakingly acquired Asian empire both in retail and investment banking, and how this step-change allows RBS to acquire instant scale in the hard-to-penetrate markets it has long seen as vital to its next phase of growth.

The jewel in the crown is ABN's cash management or payments business based in Singapore, one of the largest in the world. There are also some large-scale retail operations they have in a number of Asian countries, including India, where Goodwin travelled last month. Some of these businesses will be expanded, some sold off. Analysts concede that the market may not have yet factored in the potential benefits of these.

ONE City-based analyst for a US securities house said: "If we look back in two years time and and the earnings have come through and capital ratios have built up, then we might look at it as a storm in a teacup.

"But the market opposed RBS's stake in the Bank of China until it saw the structure, and with hindsight the 20% stake that Fred wanted to take rather than the 5% stake he took a claim RBS denies would have been a great investment."

Another case of the market being wrong and Goodwin being right?

"He always is," the analyst laughs, before making the standard point that, this time, it appears that he isn't. "At the moment it looks like quite a big shift in the bank's fortunes."

Amsterdam, meanwhile is determined to shrug off the loss of its leading financial brand. At Zuidas's Gustav Mahler Square, the chic cavern of ABN's lobby - with its sparse but expensive art collection including Andy Warhol's portrait of Queen Beatrix - will soon be downgraded to a local headquarters of Fortis, which acquires ABN's domestic retail and asset management arm.

Fortis, sponsor of the Feyenoord football team of Rotterdam, deadly rivals of Amsterdam's ABN-sponsored Ajax, is the face of the consortium in the Netherlands. Nevertheless, the Scottish leadership of the consortium is significant.

Robert Davidson, a mergers and acquisitions financier and member of the Globalscot business network, who has lived in Amsterdam for 10 years, explains that Groenink's rearguard battle to preserve ABN Amro was doomed by Dutch appreciation of Goodwin's canny appeal to the pocket, not the heart.

"For all the sentiment attached to the institution of ABN Amro, shareholders will always pursue the best deal, and if someone comes along with a price they like they will take it," he said.

"You don't f*** with the Dutch. They are tough to the point of brutality in their business dealings. Buying and selling at a profit is deeply ingrained in their psyche. The ethics of hard work, getting on with the job, rolling up your sleeves and getting value for money really speak to the way they like to see business done. I imagine there is a good cultural fit with Fred Goodwin."

In the Netherlands, as elsewhere, few doubt that Goodwin, Cameron, Fisher and their teams will make a success of the integration, though behind the screens it cannot avoid getting messy, with ABN's stock of talent, customers and IT systems proving bloodier to prise apart than the consortium and its advisers Merrill Lynch have claimed.

The omens for credit markets and the financial sector are sinister, but however the world's largest ever banking transaction fares in the end, the fact that they launched the attempt has blown open the doors to worldwide cross-border M&A in an insular industry.

A turning point in the history of Scotland's largest and boldest company may come to be seen as much more than that.