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ABN AMRO has its eye on the watch industry
Economy

ABN AMRO has its eye on the watch industry

Tuesday, 22 March 2011
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Christophe Roulet
Editor-in-chief, HH Journal

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Since the 1960s, the Dutch bank ABN AMRO has forged a solid reputation as the leading financial partner to the diamond industry. Leveraging on this position the bank is aiming to expand into the watch industry, a natural extension in the world of luxury.

The bank ABN AMRO, through its International Diamond and Jewelry Group (ID&JG), is the global market leader offering financial services to the diamond and jewellery industry. Outside the industry few people are aware of such fact but it would not stay like this for long, as far as concerns the watchmaking world at least, as ID&JG intents to make their specific product offering known to the “keepers of time”. “The watch industry is in fact rather similar to the diamond industry as a niche sector that targets customers with the same wishes and aspirations and shows strong growth in the same markets. We dispose not only of the financial capacity and a well-established international network but of a deep understanding of the market and its different players,” comments Victor van der Kwast, CEO of ID&JG.

And VVK continues: “In the same way we have been a partner to the diamond companies that have expanded into jewellery, we would like now to become partner to the watch companies and propose to them tailored financial solutions, including financing solutions that would follow their value chain, from the acquisition of precious metals, diamonds and watch components to the end-sale to specialised distributors and retailers. Given its strong international presence in key locations, including Geneva since 2005, ID&JG provides to its customers local market knowledge at a global scale, a service that the watch industry could also benefit of.”

The global diamond trade

Victor van der Kwast speaks from experience: “The diamond industry, like the watch industry, spans the globe. After they have been extracted in South Africa, Australia, Russia or Canada by mining companies such as De Beers, Rio Tinto, Alrosa or BHP Billiton, to name the most important, the rough diamonds are  either sold through a tender system (Sealed Auction/Blind Bid) or through Sights (contract between the miner and diamantaire) in London, Botswana, Namibia, South Africa, etc.  They are then cut and, once polished in New York, Tel-Aviv, Mumbai and China, are put on the market, mainly through diamond bourses. Following this path it isn’t difficult to see that diamond trade has no borders. It is simple: before being set on a ring or a watch bezel, a diamond transits in average through seven different hands. Those flows are especially interesting for a group like ours as they allow us to build solid financial partnerships.”

Once one knows how, rough diamonds are bought at De Beers Sights it is easy to understand the specific needs of the diamond companies. In order to participate to a Sight a trader had to be first accepted as Sightholder of De Beers, which has dominated the diamond mining for decades. De Beers holds in London ten sales of rough diamonds per year, known as Sights, where sightholders are presented with boxes of rough diamonds but they have no choice in selecting the goods. Either they buy the box as it comes or risk dropping down the list of agreed Sightholders hence loose access to quality stones.

 

The banks financing the diamond industry take into consideration the high margins at each step of the value chain.

Knowing that the value of a box could range from $500,000 to $2 million (€350,000 to €1.4 million), it is easy to understand that immediate access to such funds are not on everybody’s hand ease from where the importance of a solid financial partner ready to accompany its customers and finance such activities The banks financing the diamond industry take into consideration the high margins at each step of the value chain. For example: from extraction to being sold to a jeweller, the value of a diamond could be multiplied by seven, operating margins in the jewellery sector ranging from 20% to 40%. In a global market estimated at $60 billion (€42.2 billion), it isn’t a surprise that debt within the sector climbed to $15 billion (€10.5 billion) before the crisis took place.

Following closely the growth in the diamond market and benefiting on a century of expertise, ABN AMRO established a unit entirely dedicated to the diamond industry that provided solutions from the moment the diamond got out of the mine until it reached the retailer. In 1991 a successor was born and named International Diamond and Jewelry Group “ID&JG” (a business unit on its own within the ABN AMRO Group) and since then continues to expand even after recent restructuring of ABN AMRO that merged in 2008 with Fortis Bank as part of the Dutch Government plan to save the country’s major financial institutions. ID&JG is based in Amsterdam and Antwerp and has built a solid network in the industry’s key locations such as Dubai, Gaborone, Geneva, Hong Kong, Mumbai, New York and Tokyo. “With 25% market share, we are the global leader in providing financial services to the diamond and jewellery industry. Our international presence has helped us to consolidate this position and could certainly be of interest to companies active in the luxury sector such as watchmakers.” concludes Victor van der Kwast.

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