Outsourcing, offshoring and ABN Amro share price performance

If ABN Amro hadn't agressively pursued an outsource/offshore strategy over the past two years, would it have been broken-up and sold off much earlier?

The answer is probably yes.

In its 2006 annual report, the bank claimed that Services IT (responsible for group infrastructure and managing the recent offshore/outsourced arrangements) realised its EUR 300 million cost savings targets for 2006.

But even so, efficiency ratios across business units continued to lag behind peer banks. The bank's outsourcing and other efficiency/productivity initiatives weren't enough to accelerate earnings growth or a higher share price and keep the capital-appreciation hungry hedge fund investors at bay.

Last month The Children’s Investment (TCI) Fund (an investor with a 1% stake) called for the bank to spin-off non-core assets and cease any further acquisition moves in the short term. It singled out the Banca Antonveneta acquisition as a costly mistake.

TCI's letter drove M&A interest from peer banks into overdrive, resulting in today's announced merger terms from Barclays. 

If Barclays succeeds in its merger plans, the new entity will be focusing much attention on driving out the inefficiencies that ABN Amro itself was unable to - despite numerous strategies over the past six years.

I suspect that sacking people and moving jobs to low cost centres will be just the first, simple steps in a complex journey.