Final ProjectSubmitted to:

PROF. M. SALAHUDDIN

Submitted by:

Waseem Azam L1f08mbam2141

Muhammad Asad L1f08mbam2062

Submission Date:

16-06-2010

ContentsMERGER.......................................................................................................................................................2

ACQUISITION...............................................................................................................................................2

EFFECTS OF ACQUISITION ON MANAGEMENT............................................................................................2

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PRIME COMMERCIAL BANK LTD..................................................................................................................3

PRIME COMMERCIAL...............................................................................................................................4

BANK LTD (73) IN 2006............................................................................................................................4

10 YEARS AT A GLANCE............................................................................................................................4

DEPOSITS.................................................................................................................................................5

ADVANCES...............................................................................................................................................6

ASSETS.....................................................................................................................................................7

PROFIT AFTER TAX...................................................................................................................................8

ABN AMRO N.V............................................................................................................................................9

BUSINESS UNITS......................................................................................................................................9

OTHER INVESTMENTS AND SPONSORS.................................................................................................11

FACTS AND FIGURES..............................................................................................................................11

BRANCHES BEFORE MERGING...............................................................................................................11

ABN AMRO BANK (12) IN 2006..............................................................................................................11

MOTIVES OF ABN AMRO BEHIND ACQUISITION........................................................................................12

ECONOMY OF SCALE..............................................................................................................................12

ECONOMY OF SCOPE.............................................................................................................................12

INCREASED REVENUE OR MARKET SHARE.............................................................................................12

SYNERGY................................................................................................................................................12

TAXATION..............................................................................................................................................13

RESOURCE TRANSFER............................................................................................................................13

SBP APPROVES ACQUISTION OF ABN AMRO AND PRIME COMMERCIAL BANK........................................13

ABN AMRO ACQUIRES A CONTROLLING STAKE IN PRIME BANK...............................................................14

BANKING ABN AMRO BANK (PAKISTAN) LIMITED (AABPL) RATINGS (APRIL 2008)...................................15

CREDIT RATINGS OF BOTH BANKS.............................................................................................................16

RATING OF ABN AMRO IS IT’S CREDIBILITY...............................................................................................16

FINANCIAL STATEMENT ANALYSIS OF ABN AMRO (FY02-FY07).............................................................17

EFFECTS ON ABN AMRO N.V AFTER ACQUISITION....................................................................................23

CONCLUSION.............................................................................................................................................24

BIBLIOGRAPHY...........................................................................................................................................25

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MERGER

The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

3 | P a g e

ACQUISITION

An acquisition, also known as a takeover or a buyout or "merger", is the buying of one company (the ‘target’) by another. An acquisition, or a merger, may be private or public, depending on whether the acquire or merging company is or isn't listed in public markets. An acquisition may be friendly or hostile. Whether a purchase is perceived as a friendly or hostile depends on how it is communicated to and received by the target company's board of directors, employees and shareholders. Hostile acquisitions can, and often do, turn friendly at the end, as the acquirer secures the endorsement of the transaction from the board of the acquiree company. This usually requires an improvement in the terms of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one.

The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company.

The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation.

EFFECTS OF ACQUISITION ON MANAGEMENT

Mergers and acquisitions destroy leadership continuity in target companies’ top management

teams for at least a decade following a deal. The study found that target companies lose 21

percent of their executives each year for at least 10 years following an acquisition – more than

double the turnover experienced in non-merged firms.

One of the major short run factors that sparked in The Great Merger Movement was the desire to

keep prices high. That is, with many firms in a market, supply of the product remains high. This

type of cooperation led to widespread horizontal integration amongst firms of the era. These

firms usually were capital-intensive and had high fixed costs.

PRIME COMMERCIAL BANK LTD

When Prime bank incorporated in 1992, its prime strategy was focused on continuing

improvement of internal procedures and operating structures, to ensure a greater control over the

quality of its operations. Commercial banking activities were initiated at the time of inception in

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1992. During 1993, two more business divisions’ i.e. corporate banking and financial services

were added. By 1996, PCBL countrywide network of seventeen branches was in place and

consumer banking activities were accordingly launched.

Under the banks ongoing branch expansion program fifteen new branches have been added

during the years 2001 and 2002 while more branches open in December 2002. This would raise

the total number of branches to thirty three focusing primarily on the middle market commercial

banking segment while blending in the fast growing consumer banking market.

Keeping in view the past performance and the probable future prospects prime bank is focusing

on rapid expansion to cater with those market segments, which are still to be explored. The main

objectives of the management are now:

To make the bank customer focused

To plug the leakage of revenues and expenses

To correct the structural flaws in the balance sheet

To ensure internationally accepted accounting standards are followed in the bank.

Total assets of prime bank during the period from June 1992 to September 2002 grew at an

annual compound rate of about 36 percent to Rs.19.5 billion. Within this [period, shareholders’

equity grew from rs3300 mission to Rs.1.5 billion, deposits to Rs.13 billion and advances (net) to

Rs.8.1 billion. Profit before tax grew from Rs.1 million for the half year to June 1992 to Rs.235

million for the nine months ended 30th September 2002.

PRIME COMMERCIAL

BANK LTD (73) IN 2006BAHAWALPUR KHARIAN VEHARIBHALWAL LAHORE (23)DASKA MARDANDERA GHAZI KHAN MIRPUR (A.K)FAISALABAD MULTANGUJAR KHAN PESHAWAR (2)

5 | P a g e

JHELUM QUETTAGUJRANWALA RAWALPINDI (3)GUJRAT SARGODHAHYDERABAD SIALKOTISLAMABAD (2) SUKKARKARACHI (23) TURBAT

10 YEARS AT A GLANCE

Years 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Advances

1.0 1.5 2.2 2.6 3.1 4.4 5.0 5.6 6.8 6.9

Deposits 1.2 3.2 3.8 4.4 5.3 6.9 7.9 7.8 8.3 10.4

Assets 2.1 4.7 5.7 6.0 6.9 9.0 10.1 10.6 10.9 14.5

Profit After tax

30.6 71.0 99.3 70.3 73.2 128.3 84.9 69.1 96.1 152.5

DEPOSITS

During the past ten years i.e. from 1992 to 2001 prime bank witnessed a stable growth rate in its

deposits portfolio. If we look at the growth rate of deposits during the past ten years we find out

that the deposits in 2001 are approximately 9 times of what they were in 1992. The total deposits

held by rime bank in 1992 were Rs.1.2 billion and this figure rose up to Rs.10.4 billion in 2001.

The annual compounded rate of over 27%.

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Initial 6 years of rime bank experienced a compounded growth rate of 25% in its deposits. The

fiscal year July 1998 to June 1999 witnessed a poor economic performance and rapid decline

following the nuclear testing by Pakistan in May 1998. In this backdrop the overall banking

industry witnessed certain fundamental changes. The reason for decline in prime bank’s deposits

portfolio in 1999 was this recession in the economy. Prime bank deposits of all these adverse

factors managed to register a 6.5% increase in its overall deposits over the last year. And in 2001

the bank’s deposits crossed the mark of Rs.10 billion which is 25% over the previous year.

1992 1993 1994 1995 1996 1997 1998 1999 2000 20010

2

4

6

8

10

12

Deposits

Years

Deposits

ADVANCES

The advances of the bank increased at an average rate of 48% during the first two years of its

operations. After that, this rate came down to 19% in 1995 and 1996. The advances increased by

42% in the 1997 but this increase could not be maintained in the following years. The advances

increased by 1.5% in 2001, which is the least growth rate amongst all the previous years. This

was due to the recession faced by the economy during the second half of the year due to the

external shock of September 11th event. The bank continued its policy of conservative

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provisioning against non-performing loans in accordance with state bank of Pakistan’s prudential

regulations. The bank is adequately capitalized, comfortably meeting the minimum paid-up

capital requirements of SBP as well as the internationally accepted minimum capital adequacy

requirements with the capital adequacy ratio measuring approximately 16% at the year-end as

compared to the mandatory requirement of 8%.

1992 1993 1994 1995 1996 1997 1998 1999 2000 20010

1

2

3

4

5

6

7

8

Advances

Years

Advances

ASSETS

The bank’s assets increased at a gradual and stable rate during the initial years, but this rate

declined during 1998, 1999 and 2000 due to the uncertainty prevailing in the country. During

2001 the assets of the bank increased by 33% over 2000. This was the result of opening of new

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branches. The bank’s strength lies in its expansion policies and an increase in assets as a result.

1992 1993 1994 1995 1996 1997 1998 1999 2000 20010

2

4

6

8

10

12

14

16

Assets

Years

Assets

The bank’s assets remained more or less unchanged during the recession years due to

uncertain environment prevailing in the country. The need of the hour was to create and improve

customer confidence in the policies of the banking sector. Prime Bank very successfully

managed to increase is assets form Rs. 10.9 billion to Rs.14.5 billion in 2001 and a similar

increase is expected in the following years.

PROFIT AFTER TAX

Profit after tax shows he performance of the banks. An adverse decline in profit after tax was

experienced in 1995, 1998 and 1999. But the bank managed to recover from this recession and

its profit after tax increases by 59% in 2001. This was made possible due to improvement in net

interest margin and non-interest income, each increasing by over 21% over the previous year.

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Control over staff and administrative costs was also maintained which increased by just

11%despite additional expenses incurred pertaining to the planned opening of six new branches

during the year. The reduction in the corporate tax rate by 8% in the last Federal Budget further

encourager the bank’s management to undertake the expansion plans and still shows a growth in

profit after Tax.

1992 1993 1994 1995 1996 1997 1998 1999 2000 20010

20

40

60

80

100

120

140

160

180

Profit

Years

Profit

Total Assets of Prime Bank during the period from June1992 to september2002 grew at an

annual compound rate of about 36 percent to Rs.19.5million. Within this period, shareholder’s

Equity grew from Rs.300 million to Rs.1.5million Deposits to Rs.1.3million and Advances (net)

toRs.8.1million. Profit before tax grew from Rs.1million for the half-year t June 1992 to Rs. 235

million for the nine months ended 30th September 2002.

ABN AMRO N.V

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ABN AMRO is one of the largest banks in Europe and has operations in about 55 countries

around the world. With its history going back to 1824, ABN AMRO is the result of the 1991

merger of ABN (Algemene Bank Nederland) and AMRO Bank. A consortium of three European

banks, Royal Bank of Scotland Group, Fortis and Banco Santander, announced on October 8,

2007, that an offer for 86% of outstanding ABN AMRO stock has been accepted, making way

for the largest ever bank takeover in history.

ABN AMRO is listed on Euronext Amsterdam and the New York Stock Exchange. It was part of

the AEX index, until October 11, 2007. It will be removed from the Euronext 100 index on

October 12, 2007.

BUSINESS UNITS

The business units of ABN AMRO are currently organized by regions:

The Netherlands

Europe (excluding the Netherlands)

North America

Latin America

Asia Pacific

Some of the specialty products and clients of ABN AMRO Bank have a global presence:

Private Clients

Global Clients

Global Markets

Transaction Banking

Consumer Banking

Asset Management

11 | P a g e

ABN AMRO ranks eighth in Europe and 13th in the world based on total assets, with more than

4,500 branches in 55 countries, a staff of over 110,000 full-time equivalents and total assets of

€999 billion (as of September 30, 2006).

The bank has developed a strategy of having three home markets: The Netherlands, the United

States, and Brazil. The U.S. commercial banking operations of ABN AMRO consist of LaSalle

Bank in Chicago, Illinois and LaSalle Bank Midwest in Detroit, Michigan which operate under

the name LaSalle Bank Corporation. LaSalle Bank Midwest is the former Standard Federal

Bank, which changed its name on September 12, 2005. ABN AMRO also used to operate ABN

AMRO Mortgage Group, one of the leading mortgage servicing companies in the US, but in

January 2007 it sold this business to Citigroup. In Brazil, ABN AMRO's subsidiary is Banco

Real. Banco Real recently completed an acquisition of Sudameris, a peer bank in the Brazilian

market.

In 2005 ABN AMRO acquired Banca Antonveneta of Italy; this effectively gave it a fourth home

market. Antonveneta had been a cooperation partner for some years and has a similar client base

to ABN AMRO.

In March 2007 ABN AMRO announced that it was bidding US$227mn for a 93.4% stake in

Pakistan's Prime Bank, and would tender for the remainder. Prime Bank is Pakistan's 19th largest

bank and has 52 billion rupees worth of assets and 41 billion rupees in deposits. It has a network

of 69 branches in 25 Pakistani cities. The acquisition, when combined with ABN AMRO's

existing operations, would make ABN AMRO the second largest foreign bank in Pakistan (after

the Standard Chartered Bank, and put it among the 10 largest banks in the country.

OTHER INVESTMENTS AND SPONSORS

ABN AMRO sponsors AFC Ajax and owns 2.7% of a joint stock share in AS Roma.

ABN AMRO sponsors a number of racing sailboats including two entries in the Volvo

Ocean Race. On May 18, 2006 one of the crew Hans Horrevoets, 32, died after being

swept overboard in high seas. Although the boat turned around and picked him up he

12 | P a g e

never regained consciousness, and died. The ABN AMRO-sponsored "ABN AMRO

ONE" won the Volvo Ocean Race 2006.

FACTS AND FIGURES

Facts and figures of the Dutch State acquired businesses of ABN AMRO

History reaching back to 1824 when the first office was established under the name

Nederlandsche Handelsmaatschappij

International presence in 15 countries and territories

22,300 employees, of which 3,000 are outside the Netherlands

4,000,000+ retail clients

370,000+ business clients

510 bank shops

77 business branches

65 private banking offices of which 45 outside the Netherlands

Total assets*: EUR 202 billion

* Per 31 December 2009

BRANCHES BEFORE MERGING

ABN AMRO BANK (12) IN 2006

FAISALABAD LAHORE (3)ISLAMABAD MULTANKARACHI (5) RAWALPINDI

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MOTIVES OF ABN AMRO BEHIND ACQUISITION

The basic motive of ABN Amro is to use the acquiring Prime Bank Ltd to improved financial

performance. It is the basic strategy of the ABN Amro when it enter in new country it acquire the

establish bank of that country. In 2006 ABN Amro has only 12 braches but at the same time

prime has the 73 branches in Pakistan. But when it acquires the Prime bank the situation is

entirely change and it has 86 branches in 2007. The following motives are ABN Amro

considered to improving financial performance:

ECONOMY OF SCALE

The motive was the fact that the combined company can often reduce its fixed costs by

removing duplicate departments or operations, lowering the costs of the company relative

to the same revenue stream, thus increasing profit margins.

ECONOMY OF SCOPE

The efficiencies primarily associated with changing of customer requirements, such as

increasing or decreasing the scope of marketing and distribution, of different types of

products.

INCREASED REVENUE OR MARKET SHARE

They assumes that the buyer will be absorbing a major competitor and thus increase its

market power (by capturing increased market share) to set prices.

SYNERGY

Management has increasing opportunity of managerial specialization.

Purchasing economies due to increased order size and associated bulk-buying

discounts.

14 | P a g e

TAXATION

Their motive was to reduce tax through acquisition, when two banks merge into a single

bank tax charge only single or the acquiring bank.

RESOURCE TRANSFER

The motive was the interaction of target and acquiring prime’s resources which can

create value through either overcoming information asymmetry or by combining scarce

resources.

SBP APPROVES ACQUISTION OF ABN AMRO AND PRIME COMMERCIAL BANK

The State Bank of Pakistan (SBP) granted final approval for the merger of ABN Amro Bank

N.V. Pakistan and "Prime Commercial Bank Limited"(PCB) into new bank namely "ABN Amro

Bank (Pakistan) Limited" on September 01 2007.

In exercise of the powers conferred on State Bank of Pakistan (SBP), notified that the name of

"Prime Commercial Bank Limited" has been changed to "ABN Amro Bank (Pakistan) Limited"

with effect from September 1, 2007. SBP also directed the de-scheduling of ABN Amro Bank

N.V. Pakistan branches with effect from the close of business of August 31, 2007 on account of

its merger with and into Prime Commercial Bank Limited, in terms of provision of Section 48 of

the Banking Companies Ordinance, 1962.

In pursuance to scheme of amalgamation of ABN Amro Bank N.V. Pakistan Branches with and

into Prime Commercial Bank Limited (PRCBL), sanctioned on August 31, 2007 under Section

48 of the Banking Companies Ordinance, 1962, SBP in exercise of powers conferred has

cancelled the banking license of ABN Amro Bank N.V. Pakistan Branches with effect from the

close of business of August 31, 2007.

15 | P a g e

ABN AMRO ACQUIRES A CONTROLLING STAKE IN PRIME BANK

ABN AMRO announced that it has entered into agreements to acquire a 93.4% interest in Prime

Bank from shareholders for a cash consideration of PKR 13.8 billion (EUR 172 million),

equivalent to PKR 54 per share.

In addition ABN AMRO announced its intention to launch a tender offer for all remaining shares

of Prime Bank from minority shareholders.

ABN AMRO is already the third largest foreign bank in Pakistan. The acquisition will add

significant scale to ABN AMRO's franchise in Pakistan, making the combined entity the second

largest foreign bank and one of the top 10 banks in the country with assets of PKR 124 billion

[EUR 1.547 billion] and over 80 branches.

Prime Bank's profile is an excellent strategic fit for ABN AMRO's mid-market strategy. On the

commercial side, over 50% of Prime Bank's current loan portfolio is placed with small-to-

medium enterprises (SME's), enabling ABN AMRO to build critical mass and diversify its risk

portfolio in a high growth SME business banking market. Activities of SME and corporate

clients in Pakistan are increasing significantly, in particular via trade between Pakistan and Asia.

This transaction presents tremendous opportunities to accelerate our activities in the Pakistan

market as we bring together our global expertise and resources with Prime Bank's local client

base and extensive distribution network.

ABN AMRO announced that it entered into agreements to acquire a 93.4% interest in Prime

Bank from shareholders for a cash consideration of PKR 13.8 billion (EUR 172 million),

equivalent to PKR 54 per share.

In addition ABN AMRO announced its intention to launch a tender offer for all remaining shares

of Prime Bank from minority shareholders.

16 | P a g e

Billion [EUR 654 million] in assets, PKR 41 billion [EUR 508 million] in deposits and is the

19th largest bank in Pakistan. It has an extensive network of 69 branches in 25 of Pakistan's

major cities.

Naveed A Khan, Country Executive of ABN AMRO Pakistan said: "The

acquisition not only underscores our commitment to expanding further in Pakistan, it also

enhances significantly our ability to serve a larger client base with more sophisticated product

offerings and customer services."

Mr Saeed Chaudhry, President and CEO of Prime Bank said: "We have

achieved strong organic growth and market share increase in the past. This merger with a global

bank like ABN AMRO will further fast track the growth of the combined entity. ABN AMRO

has been committed to Pakistan since 1948 and provides a strong platform for our clients,

through global product expertise, and for our staff in terms of personal and professional

development opportunities."

The offer price of PKR 54 per share, equivalent to a price to book ratio of 4.0x, represents a

premium of 41.8% over Prime Bank's average share price over the past 12 months. ABN AMRO

believes that the offer price is fair to minority shareholders as it is the same price that is being

paid to the majority shareholders selling the control.

BANKING ABN AMRO BANK (PAKISTAN) LIMITED (AABPL) RATINGS (APRIL 2008)

ABN AMRO BANK (PAKISTAN) LIMITED (Formerly Prime Commercial Bank Limited)

NEW PREVIOUS ENTITY Long Term AA A+ Short Term A1+ A1 TFCS Unsecured, Subordinated (PKR 800mln)

AA- A

Outlook – Positive

17 | P a g e

CREDIT RATINGS OF BOTH BANKS

S. No.

Name of Bank/ DFIRating Agency

Short Term

Long Term

Date of Rating

Remarks

1Prime Commercial Bank Limited PACRA A1 A+ 10/1/2006

Placed on Rating Watch - Positive

2ABN AMRO Bank N.V.

Standard & Poor’s

A-1+ AA- 9/1/2006  

Moody’s P-1 Aa1 9/1/2006  Fitch-IBCA F1+ AA- 9/1/2006  

RATING OF ABN AMRO IS IT’S CREDIBILITY

The ratings of AABPL reflect its strengthened position in the local banking industry following

the amalgamation of ABN AMRO Pakistan Branches with and into Prime Commercial Bank

Limited (PCBL). Meanwhile, the very strong profile of the new parent – Royal Bank of Scotland

Group (RBSG) – remains a key rating factor. While aiming to expedite the ongoing

consolidation process, the management targets to leverage and the expanded outreach and

presence to make further inroads into the target markets. However, the extent to which the

management would be successful

The transaction is expected to close by the end of the first quarter of 2007, said a press release of

Standard & Poor's Ratings Services. Standard & Poor's Ratings Services said affirmed its

'AA-/A-1+' counterparty credit ratings on ABN Amro Bank.

“The affirmation of the ratings takes into account that the impact of the sale on the group's strong

business, financial, and risk profile is marginal, as it will result in a small book gain and only

modest capital relief for the ABN Amro group,” said Standard & Poor's credit analyst Bernd

Ackermann.

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Prime Bank is a growing local bank providing a full range of consumer and commercial banking

services. The bank has PKR 52 billion [EUR 654 million] in assets, PKR 41 billion [EUR 508

million] in deposits and is the 19th largest bank in Pakistan. It has an extensive network of 69

branches in 25 of Pakistan's major cities.

FINANCIAL STATEMENT ANALYSIS OF ABN AMRO (FY02-FY07)

ABN Amro Bank (Pakistan) Ltd. showed a rising trend of profitability over the years and in

2006, the bank earned a considerable profit of Rs 2.4 billion. However in 2007, the acquisition

year, the bank made a loss of Rs 1.56 billion. The bank went through significant changes during

the year and its overall performance was impacted during the merger.

The merged entity's loss before tax for FY07 was Rs 1.37 billion (including the PBT of ABN

Amro N.V-Pakistan Branches reported up to 31 August 07 and LBT (of Rs 2.8 billion) of the

new merged entity - ABN Amro Bank (Pakistan) Ltd for the year ended 31 December 2007).

A quarter-on-quarter analysis reveals that AABPL's PAT decreased gradually during the whole

year and during the last quarter of 2007, when the merger became effective, the bank made a

colossal loss. The deteriorating profits of the bank can be attributed to the changes in the bank's

consolidation and the management's preoccupation with it.

However, the main reason the bank incurred losses for the year 2007 was a huge increase in

provisioning in line with the SBP's directions regarding FSV. AABPL made adequate

provisioning against its advances portfolio. Due to this specific loan loss amounting to Rs 3.78

billion against non-performing loans was recognised as against Rs 861 million in the year ended

December 31, 2006. The total provisions increased by 350% amounting to Rs 1,358.226 million.

Therefore, despite an increase in the net interest margin by 4.82% from 06 to 07 the increased

provisions caused the net interest income after provisions to decrease by 54% in 2007 compared

to 2006.

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Also the total non-interest income decreased, resulting mainly from a Rs 298 million loss on sale

of the government securities - Pakistan Investment Bonds (PIBs) - and some listed shares.

As the total income decreased in 2007, an increase in total expenses by 51% surpassed the

income earned by ABN Amro Bank (Pakistan) Ltd resulting in a loss for the year 2007. Major

increase was seen in the administration expenses mainly because the bank was newly merged

and had to spend considerably on growth initiatives, integration and alignment processes.

All the earnings ratios of the newly merged entity- ABN Amro Bank (Pakistan) Ltd. show a

dismal picture because of the loss made by the bank in 2007. As a result, the earning per share

for the year-ended fell from Rs 1.78 to Rs (1.16).

Taking into account the ongoing consolidation and rationalization of certain investments and

advances portfolio, the net advances and investments of the bank witnessed a 10% and 36%

decline respectively, thereby reducing the earning assets of the bank considerably. This has

hampered the income of the bank and the bank was unable to maintain its solvency ratios in the

post merger period. It is not clear whether the solvency situation will be improved.

This decline in earning assets coupled with a decrease in cash and balances with the treasury

further lowered the total assets of the bank in 2007 by 13%. The bank has increased its

authorised capital (by issuing 800 million ordinary shares of Rs 10 each) as approved by the

members in an EOGM held on July 27, 2007. Despite this the equity base of the bank decreased

by 41%, due to negative reserves and loss made during the year 2007.

Deposits of the bank decreased by Rs 3.453 billion in 2007 compared to 2006 despite an 8%

growth in deposits witnessed during the Q3'07. The fixed deposits and saving deposits fell by

3.8% and 0.25% respectively, while the current accounts increased by 1.7% in 2007. With total

advances of Rs 64.468 billion, Rs 4.49 billion were placed under non-performing advances status

in FY07, which were 122.7% more than the previous year of Rs 2,016.839 million.

Thus, due to the increased NPLs, provisioning and reduced advances, there was a significant

20 | P a g e

increase in all the asset quality ratios of the bank. The average NPL to advances ratio of the top 5

firms is 0.01 while that of AABPL is 0.07. This shows that AABPL needs to manage its credit

risk tactfully. On the flip side, the bank seems to be already working on improving its asset

quality as it revised its credit policies and procedures (which is also believed to have resulted in

the decrease in advances for the year 2007).

The debt management of AABPL seems to have worsened as the debt ratios have increased.

Even though the liabilities of the bank have decreased due to reduced borrowings and deposits

by 11%, the equity and assets base of the bank have also deceased during the same time period

for above mentioned reasons. The net assets have decreased (by 41%) more than the deposits

(4%) explaining the rise in deposit times capital.

The bank has been able to maintain its earning assets-to-asset ratio at 0.82 in 2007 in line with

the industry trend. However, the main driver is declining assets base rather than increase in

earnings assets. AABPL's advances are 73% of the total earning assets. Investments are 19% and

lending to financial institutions constitutes just 8% of the total earning assets. AABPL must

expand its advance portfolios and consider efficient portfolio diversification. It should also

consider investments as a source of income.

The ADR was gone down from 0.77 to 0.71 from 06 to 07, as the declining deposits (3.7%)

lagged the declined in advances (10%). This shows that AABPL's liquidity position has gone

down when compared to its liquidity position in the prior years. However, with ADR above that

of the industry (0.68 in FY07), it is still in a comfortable situation to guard against any credit

risks. The yield on earning assets was 0.02 in 2006 but has become negative (-0.02) in 2007 due

to a loss incurred by the bank.

ABN Amro Bank2007Pakistan Ltd. (86)

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BAHAWALPUR KARACHI (29) VEHARIBHALWAL LAHORE (26)DASKA MARDANDERA GHAZI KHAN MIRPUR (A.K)FAISALABAD (2) MULTANGUJAR KHAN PESHAWAR (2)JHELUM QUETTAGUJRANWALA RAWALPINDI (3)GUJRAT SARGODHAHYDERABAD SIALKOTISLAMABAD (3) SUKKARKHARIAN TURBAT

22 | P a g e

23 | P a g e

Loan

s &Adva

nces(N

et)

Total

Assets

Deposit

s

Capita

l

Profit/(

Loss)

before

Tax

Profit/(

Loss)

After Ta

x0

10,00020,00030,00040,00050,00060,000

Prime Bank Ltd in 2006

Prime Bank Ltd

Loan

s &Adva

nces(N

et)

Total

Assets

Deposit

s

Capita

l

Profit/(

Loss)

before

Tax

Profit/(

Loss)

After Ta

x0

10,00020,00030,00040,00050,00060,00070,00080,000

ABN Amro N.v in 2006

ABN Amro N.V

11.7

0%

0.90

%

-0.8

0%

3.10

%

Capital Adequacy Ra-tio

NPLs to Loans NPLs to Loans (net) ROA(after Tax)

0.00%

4.00%

8.00%

12.00%

16.00%13.50%

5.10%3.40%

0.70%

prime commercial Bank 2006

Capital Adequacy Ratio

NPLs to Loans NPLs to Loans (net)

ROA(after Tax)-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

ABN Amero N.V 2006

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Major Statistics of Both Banks as of 31-12-2007  

Total Assets Deposits EquityABN Amro Bank N.V 1 16,045 9 5,743 6 ,760

Bank-wise Performance as of 31-12-2006

Capital Adequacy RatioNPLs to Loans NPLs to Loans (net)

ROA(after Tax)

ABN Amero N.V 11.70% 0.90% -0.80% 3.10%prime commercial Bank 13.50% 5.10% 3.40% 0.70%

EFFECTS ON ABN AMRO N.V AFTER ACQUISITION

ABN AMRO formally re-branded all Prime Commercial Bank branches in Pakistan on 1 Sept,

marking the completion of the merger of the two banks amid an extensive local marketing and

advertising campaign as well as festivities for staff and clients.

ABN AMRO customers now have access to a national network that includes 73 ATMs and over

86 branches in 24 cities, in addition to call centre facilities and an expanded range of products

and services.

All Prime branches across the country are now re-branded ABN AMRO, carrying the distinctive

green and yellow ABN AMRO shield logo which symbolizes reliability, tradition, protection and

security. A refurbishment program to align all ex-Prime branches with the bank's global branding

guidelines has also commenced. Refurbishment of all key branches will be completed by the end

of 2007, with the remainder scheduled for completion in 2008.

It has more than 4,500 branches in 53 countries, and has a staff of more than 107,000 full-time

equivalents worldwide. ABN AMRO is listed on Euronext and the New York Stock Exchange.

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CONCLUSION

Pakistani analysts say that after acquiring Prime Bank, ABN Amro is able to enlarge its network

with 86 branches its assets are increased and As a combined entity, ABN AMRO is now the

second largest foreign bank in Pakistan with total assets of PKR 124 billion (EUR 1,547 million)

and over 5,500 staff. This was the second biggest banking deal in Pakistan’s history after

Standard Chartered Bank acquired Union Bank for the sum of $487 million, which is the biggest

deal in the Pakistani banking sector so far. Due to this deal a number of foreign banks are

exploring possibilities to acquire Pakistani banks owing to the bright investment future. During

the last two fiscal years, the profitability of the Pakistani banking sector remained at third

position in the world banking sector.

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BIBLIOGRAPHY

http://www.sbp.org.pk/publications/bsr/bkg_system_review(2006).pdf

http://www.sbp.org.pk/publications/q_reviews/Q_Review_Sep_07.pdf

http://www.primebank.com.pk

http://www.sbp.org.pk/publications/anu_stats/2005-2006/Append4.pdf

http://www.sbp.org.pk/publications/anu_stats/2005-2006/Append3.pdf

http://www.sbp.org.pk/publications/anu_stats/2007/Append2.pdf

http://www.sbp.org.pk/publications/anu_stats/2007/Append3.pdf

http://www.abnamro.com.pk/

http://www.abnamro.com/

http://en.wikipedia.org/wiki/Mergers_and_acquisitions

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