| BUSINESSWEEK ONLINE : NOVEMBER 1, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- FINANCE
Coming Soon: Europe's First $1 Trillion Bank? (int'l edition) A union between Dresdner and HypoVereinsbank would create a global player Get ready for Europe's first $1 trillion bank. If discussions between Bayerische Hypotheken-und Vereinsbank and Dresdner Bank, Germany's second- and third-largest lenders, come to fruition, that will be the result. Neither bank has acknowledged publicly that any serious negotiations are taking place, but many analysts in Frankfurt are talking as though it's a done deal. If they're right, Deutsche Bank, Germany's biggest, would almost certainly retaliate with a domestic merger of its own, possibly with Commerzbank, or maybe a hostile bid for Dresdner. And even if they aren't, the speculation alone could spur other banks to look for partners sooner rather than later. Europe's long-forecasted orgy of financial mergers is well under way. Consider the deals that have already begun to reshape Europe's banking landscape. On Oct. 19, Spain's Banco Bilbao Vizcaya (BBV) confirmed that it would acquire Argentaria Caja Postal y Banco Hipotecario. The new bank will be one of the five largest in Europe and a serious competitor for the domestic market leader, Banco Santander Central Hispano (BSCH). Earlier in the month, Bank of Scotland PLC launched a still-pending $35 billion hostile bid for London's National Westminster Bank, and Banca Intesa in Italy unveiled plans to take over compatriot Banca Commerciale Italiana. This summer, France's Banque Nationale de Paris responded to a proposed merger between arch-rival Societe Generale and Banque Paribas by trying to take over both banks. In September, BNP acquired Paribas--though not SG. Even HypoVereinsbank (HVB) itself is the product of a two-year-old merger between Bayerische Hypotheken-und Wechsel Bank and Bayerische Vereinsbank. The impetus for consolidation is the introduction of the euro currency. That led to the creation of a single capital market for the euro zone, which means that banks need bigger balance sheets to compete effectively. Regulators seem to understand this and don't often object to these huge deals. At the same time, European investors are demanding better shareholder value, which is forcing banks to seek economies of scale, exploit synergies, cut costs, and, of course, boost meager profits. Merging is the easiest way for banks to achieve that. BBV's acquisition of Argentaria is a case in point. The deal creates a bank with about $245 billion in assets and ''the capacity to be more competitive in Europe,'' says BBV President Emilio Ybarra. It should also yield $550 million in cost savings over three years--17% of total costs--he predicts. ''Mergers like this give banks the strong domestic base they need to grow elsewhere,'' says Inigo Lecubarri, a banking analyst at Salomon Smith Barney in London. Indeed, a Dresdner-HVB union would create not just a top-flight European bank but, potentially, a global player. The two could exploit cross-selling opportunities: HVB is a major player in the lucrative mortgage business, an area Dresdner would like to develop. And Direkt Anlage Bank, HVB's online banking subsidiary, is one of Europe's most successful Internet banks and would give Dresdner a much-needed online boost. Dresdner, by contrast, has a major presence in European investment banking as a result of its 1995 acquisition of Britain's Kleinwort Benson. And it has a world-class asset management franchise. Analysts also say the two banks could cut retail costs by consolidating their branch networks and back offices--though they would have to shed jobs gradually to comply with Germany's tough labor-protection laws. At this point Dresdner CEO Bernhard Walter and his counterpart at HVB, Albrecht Schmidt, will only say that they are always considering possible deals. There is another important factor favoring a union: Allianz, the giant Munich-based insurer, owns 22% of Dresdner and 17% of HVB. Allianz CEO Henning Schulte-Noelle has made it clear that he wants to improve the company's returns on its stock portfolio. Bringing together Dresdner and HVB would be one way to do that. ''Whatever happens, Allianz will have the final say,'' says Dieter Hein, a banking analyst with Credit Lyonnais in Frankfurt. ''My instinct is they will go for it.'' Still, big hurdles stand in the way. HVB will not finish the restructuring following its own merger until early next year, which is why Hein believes a deal isn't likely before then. And the Bavarian state government might try to prevent the union if the new group planned to establish its headquarters in Frankfurt rather than Munich. Meanwhile, Walter could have trouble selling the deal to his top managers in Frankfurt. Several of them would prefer that Dresdner expand on the international and investment banking fronts by merging with BNP-Paribas, with which it has a long-standing relationship, or by acquiring a U.S. investment bank. Then, of course, there is the question of how Deutsche would respond. It is still digesting last year's acquisition of Bankers Trust, although that didn't stop CEO Rolf-Ernst Breuer from opening discussions with Dresdner in September about merging their costly retail operations. But the negotiations went nowhere, mainly, say those involved, because Dresdner CEO Walter feared his bank would be the junior partner. Now, some bankers think that Breuer may launch a hostile bid for Dresdner. Such a move would be unprecedented in German finance. But, says Bryan Crossley, a banking analyst at ABN Amro Hoare Govett in London, ''a merger between HVB and Dresdner would pose a significant competitive threat to Deutsche. Breuer would probably pull out all the stops to prevent it.'' BREAKING POWER. At the very least, say analysts, Breuer might try to negotiate a merger with Commerzbank, Germany's fourth-largest private-sector bank. But Commerz CEO Martin Kohlhaussen has said he wants to keep his bank independent. And since Commerz has a broad shareholder base, plus cross-shareholdings with several European banks including France's Credit Lyonnais and Spain's BSCH, it probably isn't vulnerable to a hostile takeover. Which may bring Breuer back to Dresdner. An alliance between Deutsche and Dresdner would create a global behemoth and yield vast savings. Earlier, executives at Dresdner apparently had opposed a union because they couldn't face working for the bank they had long called the enemy. But the real power to make or break the deal is in the hands of Allianz's Schulte-Noelle. And he might just like the idea. After all, Allianz not only owns a significant chunk of HVB, it also has a 5% stake in Deutsche. But whether Dresdner ends up with HVB or Deutsche, things will never again be the same in the German banking industry. Consolidation has begun with a vengeance. And in phase one, Allianz has a big say in how it unfolds. By David Fairlamb in Frankfurt _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Coming Soon: Europe's First $1 Trillion Bank? (int'l edition) TABLE: Hypo and Dresdner: How They'd Work Together (int'l edition) INTERACT E-Mail to Business Week Online | |||
