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The banking buzz has been all about cross-border consolidation in ''old Europe,'' but the more interesting story lies east of the Danube.
Tony McAuley, CFO Magazine
October 15, 2005
A banking renaissance may be in the offing in Europe, though one could be forgiven for missing it. Attention these days has not focused on stirrings of new life for the banking industry within former Soviet satellite states. Instead, the headlines have gone to Italy, the birthplace of European banking, for business as usual.
In June, UniCredito, Italy's largest bank by market value, sparked talk that the long-awaited European cross-border bank consolidation had finally begun. But the buzz over its bold $20 billion takeover bid for HVB (Bayerische Hypo- und Vereinsbank), Germany's second-largest privately held bank, was short-lived. By July, the talk had turned to scandal amid allegations that Italy's central-bank governor, Antonio Fazio, interfered unduly to make sure that two of this year's other large bank takeovers remained all-Italian affairs.
For many, Bank of Italy's move to block Spain's Banco Bilbao Vizcaya Argentaria from bidding for Italy's Banca Nazionale del Lavoro and, more particularly, its effort to stop ABN AMRO of the Netherlands from taking over Antonveneta, another Italian bank (allegedly on behalf of Banca Popolare Italiana, or BPI), showed everything that is wrong with European banking. Narrow, nationalistic interests were protecting highly profitable domestic bank markets — perhaps illegally — at the expense of customers. This mainly hits individuals, but also affects many businesses that would benefit from more competition.
The investigation of the BPI-Antonveneta affair may ultimately end up helping to open Italy's banking market and put broader European consolidation back on track. In September, ABN AMRO agreed to buy a 39.37 percent stake in Antonveneta from BPI, which makes the Dutch bank the first foreign firm to take over a large Italian Bank.
In the meantime, however, a much more obscure cross-border development may say more about the changing world of European banks and their relationships with corporate customers. The Romanian government in July put 50 percent plus one share of state-owned BCR (Banca Commerciala Romana) and 75 percent of state-owned savings bank CEC (Casa de Economii si Consemnatiuni) up for auction to foreign banks. BCR, the country's largest commercial bank, represents 27 percent of the market and holds assets of about $6.5 billion. CEC, too, has a significant share of the country's market. But with $1.3 billion in assets and 1,400 branches, it is small fry in the broader scheme of things. By late summer, at least a dozen banks had submitted bids for one or both institutions. Among the bidders for BCR is Fortis, a Dutch-Belgian banking and insurance giant with revenues of $75 billion. Bidders for CEC include Raiffeisen International (RI), a unit of Austria's RZB (Raiffeisen Zentralbank), the leading foreign bank in Eastern Europe.
Why the interest? Perceptions, as well as the fundamentals, have changed since the Russian financial crisis spooked investors in the region in the late 1990s. Investors have realized that Romania, Bulgaria, and other former Soviet satellites kept on growing during the crisis, and they now trade more with the West than with old Mother Russia. As Herbert Stepic, chief executive of RI, points out, economic growth in the Baltic region is projected to average nearly 12 percent a year in the 2004 to 2007 period, more than three times the rate in the 15 "old Europe" countries. Growth in the banking sector is expected to be much higher still: between 30 and 40 percent in some countries.
Says Gilbert Mittler, CFO of Fortis, "Two years ago, if I had told analysts our company was considering a sizable investment in Romania, our share price would have been hit. Not anymore."
In RI's $1.3 billion initial public offering earlier this year (the biggest in Europe so far this year), Stepic says, the bank was able to tell prospective investors that it expects growth of three-to-four times the GDP in the region. RI's pretax earnings for the first half of the year were up 58 percent, to $333 million. Its share price since the February offering is up 50 percent.
Stepic's message for international companies contemplating investment in Central and Eastern Europe? "Don't be shy. There are huge opportunities. It is the growth engine of Europe."
Tony McAuley is deputy editor of CFO Europe.
|Euro Banking on the Rise
Merger and acquisition activity in the European banking sector (deal value in $ millions):
|Year||Deal Value||Number of Deals|
Top 10 Announced Deals in Europe This Year (in millions)
|Announcement Date||Target||Acquirer||Deal Value|
|June 13||Bayerische Hypo- und Vereinsbank - HVB Group||UniCredito Italiano||$18,611|
|April 29||Banca Antonveneta (73.1%) (Bid No. 2)*||Banca Popolare di Lodi Scarl||8,490|
|September 2||Skandia Forsakrings||Old Mutual||5,968|
|July 18||Banca Nazionale del Lavoro - BNL (58.04%) (Bid No. 2)||Compagnia Assicuratice Unipol||5,942|
|September 5||Banca di Lugano; Ehinger & Armand von Ernst; Ferrier Lullin & Cie; GAM Holding||Julius Baer Holding||4,554|
|June 13||Bank Austria Creditanstalt (22.47%)||UniCredito Italiano||3,263|
|March 9||Banca Antonveneta (24.04%)||Banca Popolare di Lodi Scarl||2,675|
|September 26||Banca Antonveneta||ABN AMRO||2,623|
|August 9||NIB Capital Bank||Investor Group (IBO)||2,223|
|February 11||Hansabank (40.29%)||Swedbank (ForeningsSparbanken)||2,216|
|*Suspended by investigation
Sources: Dealogic, CFO