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Looming ABN Amro, Barclays deal could impact lending

By Beth Braverman and Susan Thea Posnock
April 23, 2007

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Amsterdam, The Netherlands—The boards of international banks ABN Amro and Barclays have agreed to merge, in an approximately $91 billion deal that industry observers speculate could impact lending in the diamond industry.

The boards have recommended their shareholders approve the tentative agreement, which would create the world's largest institutional asset manager and its eighth-largest wealth manager, with 47 million customers. The holding company of the combined group would have the name Barclays PLC.

The companies said in a joint statement that they expect the merger to create a "strong and competitive combination for its clients, with superior products and extensive distribution" as well as increased earnings for shareholders.

Under the terms of the accord, ABN AMRO shareholders would receive 3.225 shares in Barclays for each existing ABN AMRO share. Barclays existing shareholders would own 52 percent and ABN AMRO existing shareholders would own 48 percent of of the combined group.

ABN AMRO's International Diamond & Jewelry Group, based in Belgium, currently has 12 branch locations and finances projects throughout the diamond and jewelry trade. In the last six months, two of its clients, and major industry players, M. Fabrikant and Son and L.I.D. Ltd.'s United States-based operations, have filed for Chapter 11 bankruptcy protection. Given that ABN was a lender to both companies, it's been suggested that ABN Amro will tighten its credit standards, whether it merges with Barclays or not, but many have been predicting a merger would add more uncertainty into the mix.

Ken Gassman, an industry consultant, says that if the banks ultimately end up pulling back from the diamond industry, it could mean retailers will have to find their own financing or live with having less inventory.

"The banks are not going to cooperate with suppliers, and ultimately it's going to squeeze retailers," he says.

As the possibility of a merger grew in recent weeks, other analysts were less concerned about the impact.

"Diamonds must be a tiny part of ABN's current overall business, and if Barclay's is successful in the merger, it is unlikely to be a priority issue for them," says Richard Wake-Walker, founding partner of WWW International Diamond Consultants. "Having said that, the level of credits is dangerously high, so anything that might tighten up the lines would be to the industry's longer-term benefit."

For more on the possible merger and ABN Amro's liquidity issues, see the May 1 issue of National Jeweler.
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Business | Company Activities and Information | Company Bankruptcies | Mergers and Acquisitions

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