Industry Financing Could Change With ABN Merger

British bank Barclays has agreed to buy Dutch bank ABN AMRO, a leading bank for the diamond and jewelry industry, for about 67 billion euros ($91 billion) in what analysts are calling one of the largest bank mergers ever.

According to estimates, ABN holds an estimated one-fourth of the diamond industry’s financing portfolio and also lends to many jewelry companies. And there is considerable speculation among the diamond trade—and other jewelry industry bankers—that a new, more hard-nosed owner could force it to tighten up credit. Analysts say this could have a ripple effect—and retailers could have less memo and other credit available.

As a Dutch bank, ABN has had historic ties to the diamond industry in Amsterdam, the Netherlands, and Antwerp, Belgium. Executives there have long-standing relationships with the jewelry industry, particularly U.S.-based group vice president Anna Martin, who was recently president of the Women’s Jewelry Association.

And yet the industry’s unique and sometimes risky nature could prove unattractive for new owners, particularly in the wake of two recent bankruptcies of major industry companies as well as legal compliance issues that now govern diamond lending, including the Patriot Act and other anti-money-laundering rules.

There are signs that, even before the merger, ABN is taking a harder line on credit. At a recent conference in Mumbai, Loet Kniphorst, the global head of the bank’s International Diamond & Jewellery Group, warned that the industry’s “maximum” debt level “has been reached.”

The merger is not certain, as ABN also has received a counteroffer from banks that want to break up ABN into components, including one from the Royal Bank of Scotland. It may also entertain other bids.

Rival bankers cautioned that even if the merger goes through, most don’t see a real impact for another two years or so. While some thought the bank would likely either sell or close down its diamond and jewelry division, at least one thought it possible that it could be expanded. “If that is not even an option,” the banker asked, “what are we doing in this business?”

The proposed merger would give Barclays’ shareholders 52 per-cent of the combined group.

Calls to Martin were not returned.