ABN Amro and Barclays confirm merger talks

ABN Amro, one of the five biggest Dutch banks, has confirmed that it is holding "exclusive, exploratory talks" with British bank Barclays on a possible merger, Dutch daily Financiele Dagblad reported Tuesday.

The two banks on Monday evening said in almost identical statements that the discussions are at an "early and exploratory stage."

According to the banks, the approach is the result of "a carefully considered decision to create a highly complementary partnership." The banks stated that they are not certain the discussions will lead to a transaction.

If the banks do reach a deal, it would be Europe's biggest ever cross-border transaction. The new entity would be one of the world's largest banks with a market value of more than 117 billion euros.

Insiders confirmed that the boards of management of the two banks have been talking about a merger for several weeks, the newspaper reported.

Recently a hedge fund, the Children's Investment Fund has been campaigning for a breakup or sale of ABN Amro, which has been underperforming for years. The hedge fund now has a one-percent stake in the Dutch bank and has won considerable support from investors.

After news of Barclay's interest was leaked at the weekend, ABN Amro's share price climbed by almost 10 percent on Monday to 29.94 euros, its highest-ever level. Barclays shares lost 0.9 percent, a sign that shareholders do not automatically rule out a merger.

British stock exchange rules require a listed company to announce takeover talks if the media publish rumors of them. This forced the banks to issue Monday's statements.

A spokesperson of Dutch Finance Minister Wouter Bos said Tuesday that a possible merger of ABN Amro and Barclays would fit in with the developments of the European banking sector.

If the talks should lead to a takeover, the law requires that a certificate of no objection be issued by the finance minister due to the size of ABN Amro.

The spokesperson said the minister would "consider carefully a request for a certificate of no objection" and will consult the Dutch central bank before making a decision.

It remains unclear whether the exclusivity will prevent other takeover candidates from bidding for ABN Amro.

Now that it is clear that the bank is willing to give up its cherished independence, many banks seem to be interested, including the French banks BNP Paribas and Societe Generale, Spain's BBVA and Santander, and the Royal Bank of Scotland and Dutch bank ING.