Sberbank Enters Ex-Satellites as $13 Billion Bank Deals Loom
July 18, 2011, 2:46 AM EDTBy Boris Groendahl, Marta Waldoch and Denis Maternovsky
(Updates with VTB comment from fifteenth paragraph.)
July 18 (Bloomberg) -- OAO Sberbank, Russia’s biggest lender, is aspiring to become a regional player in the fast- growing central European market, where lenders worth as much as 9 billion euros ($13 billion) may go on sale in the coming years.
Sberbank agreed on July 14 to buy a network of nine small banks in countries including the Czech Republic, Slovakia, Hungary and most of former Yugoslavia from Austria’s Oesterreichische Volksbanken AG. Chief Executive Officer German Gref said this was only the first step in making Sberbank a “global bank” by using the new group as a platform for further acquisitions in eastern Europe and Turkey.
Gref is targeting a region dominated by western Europe- based banks. UniCredit SpA, Erste Group Bank AG, Raiffeisen Bank International AG and Societe Generale SA are among the biggest lenders by assets in the former communist bloc after building cross-country networks in the two decades since the fall of the Iron Curtain.
Volksbanken was a unique opportunity for Gref to match at least their geographic footprint and establish a base for further expansion. With banks including KBC Groep NV, Banco Comercial Portugues SA and Hypo Alpe-Adria-Bank International AG potentially selling assets from Poland to Serbia, he will have plenty of options to tuck into more deals.
Bolster Finances
“There is something changing substantially and Sberbank’s acquisition of VBI is part of it,” said Hugo Swann, a banking analyst at Credit Suisse AG. “We are going to see a number of assets changing hands in the next few years, probably sooner. It’s a good opportunity for some banks to take up market share.”
The possible sellers in the region include those looking to bolster their finances as they face the challenges of their home countries’ escalating debt. That, along with the need for some to repay bailout funds or meet state aid conditions imposed by European Union regulators, may spur deals.
Transactions will mostly be led by either a change in the strategy of the acquiring bank linked to a decision to enter the region or macroeconomic pressures in the parent company’s country, said Artur Tomala, who heads central and eastern European operations at Goldman Sachs International.
On top of that, big participants present in many of the region’s countries such as UniCredit or Raiffeisen are already reviewing their operations, and may sell units that lack scale, Credit Suisse’s Swann said.
Growth Market
“We have seen UniCredit talk about a strategic review of their business, changing their focus slightly to fewer markets with greater market share,” he said in a telephone interview. “We will see other banks taking a view as to where they are going to be, giving up market share in some countries and gaining in others.”
As potential buyers, western banks may still be tempted by faster growth in eastern Europe than in their home markets. The euro area is projected to grow 2 percent this year and 1.7 percent in 2012, according to the International Monetary Fund. That’s less than half the rate forecast for central and eastern Europe of 5.3 percent this year and 3.2 percent in 2012.
On top of that, products from credit cards to loans and mortgages are still less widely used. Bank assets as a percentage of gross domestic product were at 83 percent in Poland, 115 percent in Hungary and 124 percent in the Czech Republic, compared with 338 percent in the euro area in 2009, according to UniCredit.
New Markets
For Sberbank, which has been busy managing the rapid growth in its home market followed by the financial crisis in the last decade, the region now offers the potential to boost earnings, said Vladimir Savov, a banking analyst at Otkritie Financial Corp. in Moscow.
For Russian banks “there was virtually no need to look to other markets” in the years starting 2000, Savov said. “Then the crisis came, and over the last two-to-three years dealing with the problems of this exponential growth was the main concern.”
“Now that the crisis is over, one thing is clear: the local banking market will grow at a more moderate pace, and has already become more competitive,” he added. Banks are now looking for opportunities to “access other markets in order to boost their earnings and return on equity.”
International Appetite
VTB, Russia’s second biggest lender, that operates in Belarus and Ukraine and, after its acquisition of Bank of Moscow, in Serbia, does not plan to boost its presence in eastern Europe at least in the next two years as it seeks to concentrate on strengthening its existing operations, said Ekaterina Petelina, head of strategy and corporate development at VTB Group in Moscow.
“The most successful Russian banks are likely to show appetite for international development,” Petelina said. “This will largely happen via acquisitions as developing this business from the ground up is very difficult.”
Sberbank’s Gref, who has hired former UniCredit CEO Alessandro Profumo to advise on his expansion in the region, told reporters in Moscow that the Volksbanken purchase was his “first step in transforming Sberbank into a global bank.” Apart from eastern Europe, he’s also targeting Turkey, Gref said.
Fertile Ground
While VBI isn’t among the top five banks in any of its major markets, it gives Sberbank a basis on which to build, Credit Suisse’s Swann said. Sberbank’s actions make “a lot of sense in that they are getting a foothold in a lot of countries and can then bolt on further deals over the next couple of years,” he said.
Banking takeovers in central Europe picked up in 2010 after the financial crisis curbed asset sales in the previous two years. Acquisitions exceeded $13 billion in 2010, four times the level of a year earlier, led by Banco Santander SA’s 4.2 billion-euro purchase of Bank Zachodni WBK SA, Allied Irish Banks Plc’s Polish unit, data compiled by Bloomberg shows.
Deal values were more than twice the 2010 level in 2006, when $29 billion of emerging European banks were sold. Buyers paid about 3.8 times book value on average that year, compared with 1.6 times last year, according to data compiled by Bloomberg.
“A lot of these markets, such as Poland or Ukraine, are very competitive -- the offering of banking services is comparable to that in western Europe, and entering them requires significant investment,” VTB’s Petelina said.
Greek Sales
Greece’s EFG Eurobank Ergasias SA this year agreed to sell a majority stake in its Poland-based Polbank unit to Raiffeisen Bank for 490 million euros to boost capital. The deal will help Vienna-based Raiffeisen, eastern Europe’s third-biggest lender, to almost double its assets in Poland, where it previously wasn’t among the top ten banks. Eurobank also seeks to sell its Turkish unit Eurobank Tekfen, it said last week.
“Before the crisis a lot of banks grew their loan books pretty quickly across eastern Europe, now some of those are facing funding and capital shortfalls,” Credit Suisse’s Swann said. “In some ways the Greek banks are examples of this.”
Banco Comercial, based in Porto, may also have to sell Bank Millennium SA in Poland, analysts including Paul Formanko at JPMorgan Chase & Co. have said. The Portuguese lender must reach a core Tier 1 ratio of 10 percent next year, and said on May 23 it would “analyze” its international operations for reaching that goal. A company spokesman reiterated last week it has no intention of leaving Poland.
EU Rules
KBC, the recipient of a 7 billion-euro bailout from the Belgian government, plans to sell its Polish bank and insurance units Kredyt Bank SA and Warta SA, the Brussels-based company said last week. It is seeking offers of about 2.5 billion euros for the stakes, two people with knowledge of the matter said last month. The sale is part of a restructuring plan agreed with the European Union because of the state aid.
For the same reason, Germany’s Bayerische Landesbank and Austria’s Hypo Alpe-Adria-Bank International AG are selling their businesses in eastern Europe. BayernLB’s MKB, Hungary’s fourth-biggest bank, may be worth almost 1 billion euros based on the price-to-book multiples of 1.2 of Hungarian market leader OTP Bank Nyrt. Hypo Alpe, the third-biggest lender in former Yugoslavia, said in February the book value of its business in Croatia, Serbia, Slovenia, Montenegro and Bosnia-Hercegovina was 1.5 billion euros.
Apart from Sberbank, European and global banks such as HSBC Bank Plc may be looking at assets in Poland, according to Miklos Kormos, Deutsche Bank AG’s head of investment banking for central and eastern Europe.
In Poland, “the economy never slipped into recession,” Kormos said in an interview. “The banks themselves have a relatively stable capital base. It’s appealing both from the growth perspective and asset and capital perspective.”
--With assistance from John Martens in Brussels and Anabela Reis in Lisbon. Editors: Zoe Schneeweiss, Paul Jarvis
To contact the reporters on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net; Marta Waldoch in Warsaw at mwaldoch@bloomberg.net; Denis Maternovsky in Moscow at dmaternovsky@bloomberg.net
To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net; Angela Cullen at acullen8@bloomberg.net
