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European Banks: Will The Walls Tumble Down?


Spain's No. 2 bank, Banco Bilbao Vizcaya Argentaria (BBVA) (BBVA), has been coiled to strike for six years. Its management vowed as early as 1999 that it would be first to clinch a major cross-border bank takeover in Continental Europe. Since then it has patiently bided its time, even while it snapped up lenders in Latin America and built a $56 billion market cap. Now BBVA's moment may have arrived. On Mar. 18, Chairman Francisco González notified Italian financial authorities that he wants to buy all outstanding shares of Banca Nazionale del Lavoro (BNL), Italy's sixth-largest bank, in a $9.2 billion buyout.

The deal would make BBVA Europe's No. 6 bank. More important, a successful bid could spark a series of takeovers among Continental banks. Politicians and central bankers in France, Germany, and Italy have for years blocked foreign banks from entering their turf. But the European Union has stepped up the pressure lately on recalcitrant bank authorities such as Bank of Italy Governor Antonio Fazio to stop thwarting such deals and make good on the goal of creating a single European financial market. "If this bid succeeds, it will be the end of national protection," says Madrid-based consultant Fernando Fernandez, a former World Bank economist. "Someone will do something soon in France and Germany."

The EU's tough stance has emboldened BBVA's management team to try its luck. Dutch giant ABN Amro (ABN) is also contemplating a bid for Banca Antonveneta, another midsize Italian bank. In what could be a significant development, on Mar. 22 Italian Prime Minister Silvio Berlusconi said the Spanish and Dutch bids do not "jeopardize the identity of the national banking system."

WAITING GAME

Gonzalez is betting the forces of change will carry the day. BBVA is offering to pay $3.27 a share for BNL, valuing the bank at $9.2 billion. BBVA, which has a strong track record turning around inefficient banks in Spain and Latin America, wants access to Italy's highly profitable retail banking market, where weak competition and low consumer debt levels could help BBVA drive growth at BNL.

Once BBVA's board has formally presented its offer to BNL, the Bank of Italy's Fazio has 30 days to respond. Technically, the central bank may scotch a deal only if the potential suitor is financially unsound or the transaction would create "market disruption." But that hasn't stopped Fazio from rejecting other offers from well-capitalized French, German, and Spanish banks. If he does give the proposal a thumbs-down, then BBVA can appeal the bid to the European Commission. Though EU legal battles can take years, experts are betting arm-twisting from Brussels could break the Italian deadlock sooner.

Many European financiers worry that the constraints on mergers and acquisitions are marginalizing euro zone banks by preventing the formation of global banks capable of competing with the likes of Citigroup, HSBC (HBC), and UBS (UBS). Banks like BBVA are champing at the bit to buy up weaker players. In fact, the bid for BNL isn't the bank's first attempt to break into Italy. Before BBVA predecessor BBV merged with Argentaria in 2000, top management at BBV attempted a merger in 1999 with Unicredito. But Fazio dashed the deal with Unicredito, and he's reported to be trying the same now by putting together a group of Italian investors to make a counterbid for BNL.

As a result of that setback, BBVA has sat on the sidelines, slowly upping its stake in BNL from 10% in 1999 to 14.72%. Now, González aims to storm the Italian banking barricades once again. And this time, he has a stronger hand, thanks to EU backing. If he succeeds, Europe's financial landscape could be in for radical change.

By Gail Edmondson in Frankfurt


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