Shareholder of the day: Patrick Degorce

The Children's Investment Fund sounds so cuddly, doesn't it? And in fact it does give a large chunk of its profits to charity. But it gets those profits by buying up stakes in undervalued companies and forcing management to shake them up – and the latest target is ABN Amro.

TCI was founded by Christopher Hohn, but the formal letter to ABN Amro, which is reprinted at Alphaville, was written by TCI partner Patrick Degorce. He's not pulling punches:

Since the current chairman of the Managing Board was appointed in May 2000 ABN AMRO has given shareholders a cumulative share price return of 0% (excluding dividends) compared to (a) the ABN AMRO selected peer group of approximately 44% and (b) the Dow Jones Euro Stoxx Banks Index of 44% (all numbers are for the period 1 June 2000 to 31 January 2007).This terrible shareholder return is a function of the fact that ABN AMRO’s underlying earnings per share has been broadly flat for around 6 years, during a time when nearly all banks globally have enjoyed a period of strong earnings growth.The Managing Board has presented several restructuring strategies over the last 6years which were supposed to accelerate earnings growth which would be reflected in a higher share price. In 2006 they again committed to cut costs and they have so far failed to deliver.

Degorce reckons that breaking up ABN Amro could "justify a price significantly in excess of EUR30 per share" – which isn't all that much higher than the €27.25 the bank is trading at in the wake of Degorce's letter becoming public. But the real impetus behind the letter, I think, is not to split up the banks in ABN Amro's "home markets" of Italy, Holland, Brazil and the US Midwest. Rather, it's to force ABN Amro to get its own house in order before embarking on a foolish and expensive acquisition of Capitalia.

On the other hand, other parts of ABN Amro, such as the capital markets and asset management businesses, might well get sold off, along with its Asian holdings. Either way, Degorce has managed, with one letter, to increase the value of ABN Amro by over $3 billion in one day, which is pretty impressive.

Posted by Felix at 13:34 EST

Comments

The management of ABN Amro has always been a mystifying and impenetrable clown circus. Sort of like Cirque Du Soleil without the imagination. In the US, we've seen groups founded and abandoned with reckless abandon, sometimes within the space of weeks, unwieldy multiple cross-border reporting lines, and an inability, over TWENTY-EIGHT YEARS LATER, to even attempt to integrate New York corporate banking with LaSalle's Chicago-based people. I'm surprised they assembled their wits for long enough to even produce some accounts.

Posted by: Gari N. Corp at 15:08 EST, February 21, 2007