It appears that the group lead by Royal Bank of Scotland has won the right to buy bank ABN Amro (ABN) for $101 billion. RBS and buy-out partners Fortis and Banco Santander will break ABN into pieces. Each of the three buyers will take the part that is most valuable to its current businesses, and all will be right with the world.

The deal is huge, but because there were, in essence, three buyers, the prey could be digested. As one banker told The Wall Street Journal "Size on its own is no longer a safety net for financial institutions."

The banking world has changed since ABN Amro went into play. Bank balance sheet have become mine fields primarily due to leveraged buy-out loans and pools of mortgages. Although many of these problems are being written off in third quarter earnings. much of this debt cannot be marked to market, because there is no liquid market at this time. Determining the value of many bank balance sheets has become an exercise in modeling and theory.

Until the current set of credit problems are washed out of the banking system, and that could take two or three years, due diligence on financial company balance sheets will become extremely difficult.

And, that may put a halt to banks buying other banks for quite some time.

Of course, there is always KKR.

Douglas A. McIntyre

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