Barclays bank is to buy Dutch bank ABN Amro in a €67bn (£45.4bn) deal that will spark a huge IT integration project and see 23,600 jobs either axed or offshored.
The deal, which looks set to be Europe's biggest financial services sector merger, is expected to generate annual savings of €3.5bn (£2.37bn) by 2010, with about £1.9bn savings coming from cost synergies and rationalisation.
Of this, around 57% is expected to come from staffing cuts, expected to involve IT and back office processing staff. The merged bank is set to reduce its combined staff by approximately 12,800, with another 10,800 jobs offshored. Another 29% will come from a reduction in spending on IT and telecommunications hardware, software and development as the two banks rationalise their technology.
The merger announcement says staff reductions will come partly “through establishing shared services and offshoring those positions to low cost locations such as India”, where ABN Amro already has facilities.
Staff reductions and offshoring – expected to affect around 10% of the combined banks’ workforce – will take place over the next three years.
The two banks will also consolidate their datacentres and supporting IT networks. The combined firm will integrate ABN Amro’s trade and payments back office operations into the Barclays network and integrate their payment card operations under Barclaycard, the announcement adds.
The banks are expecting integration costs between their businesses to be €3.6bn (£2.44bn). Integration between their IT systems may be eased by the fact that both are significant SAP users. The Dutch bank extended its use of the enterprise software in October, while Barclays has a single SAP system providing a platform across its businesses.
The job cuts arising from the merger are far larger than those announced by ABN in October, when it announced plans axe hundreds of IT jobs in a bid to rationalise its organisation and improve efficiency after poor third quarter results. The bank had already signed a £1.23bn outsourcing deal – one of the largest in the European financial sector – with Accenture, IBM, Infosys, Patni and Tata Consultancy Services in September 2005.
Barclays is has been reviewing its IT systems as part of a wider overhaul of operations. It is moving to standardise its infrastructure and platforms, following a rationalisation of its contracts with suppliers last year.
The UK bank has signed a seven-year framework deal with BT, for voice, LAN, WAN and firewall services and extended its business process outsourcing contract with Siemens and an applications development contract with Accenture.
Barclays chief executive John Varley said: "This proposed merger represents a unique opportunity to create a new competitive force in financial services, which will deliver benefits for our customers and clients and generate sustained growth and additional value for our owners.”
He added that the merger would “significantly enhance stand-alone product development capabilities and distribution”
Rijkman Groenink, chair of ABN Amro’s managing board, said: "We believe that merging with Barclays will unite our significant complementary strengths and create long-term value for our shareholders."
ABN Amro will extend Barclay’s geographical reach, with its branches in 53 countries. The Dutch bank has 28 branches and substantial business in India. But its Chicago banking arm, LaSalle, is excluded from the Barclays deal and will be acquired by Bank of America for $21bn (£11.5bn).
Last week, Barclays announced plans to hand out half a million handheld chip and PIN readers to its online banking customers in a bid to crack down on fraud.
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