About anyone and anything anywhere related to banking and making money with money - by Aivars Jurcans
Buying, Selling, Merging
Anbang Insurance, a Chinese conglomerate which has been taken over by the state and supported by USD 10 billion capital injection earlier this year, has sold a 35% stake in Chengdu Rural Commercial Bank for a total consideration of USD 2.4 billion. Shares in Chengdu Rural have been reported as Anbang’s largest bank holding and also as being considered the least liquid.
Aflac, a US life insurer, has confirmed that Japan Post is going to acquire a stake of less than 10% in it for a consideration of nearly USD 3 billion. Aflac sells supplemental insurance to replace income or pay for out-of-pocket costs in case of illness or disability. In Japan Aflac is said to dominate cancer insurance selling the policies through Japan Post offices.
Denmark’s Saxo Bank has made an offer to acquire all of outstanding shares in BinckBank NV, a Dutch online brokerage with operations in Belgium, France, Italy and Spain and c. 633 thousand customer accounts, at a price of EUR 6.35 per share, a 35% premium over the the last trading price of EUR 4.72 a share. The total deal is valued at c. EUR 424 million. If Saxo acquires more than 95% of shares BinckBank will be delisted from the Euronext Amsterdam.
Sabadell, a Spanish bank, has announced its agreement to sell 80% of shares in Solvia, its real estate services business. to Intrum, a Swedish financial services company. The transaction values Solvia at EUR 300 million and it has been disclosed that Intrum will pay EUR 190 million in Q1 2019 and another EUR 50 million in 2022. The deal is expected to elevate Intrum to a position among the top 3 in the market, while generating a EUR 138 million capital gain for Sabadell.
Helaba, a German public sector bank, has agreed to acquire the German unit of Dexia, a Franco-Belgian bank. The purchase price of the unit that has assets of EUR 18.9 billion and equity of EUR 628 million is reported to be EUR 352 million. Dexia was bailed out in 2011 and still backed by governments of Belgium, France and Luxembourg.
Danske Bank’s pension unit, Danica, has confirmed a sale of the Swedish part of its business for a total consideration of USD 288 million to a consortium led by Polaris and Acathia, Swedish and German private equity funds respectively. The divested unit is reported as having 150,000 personal and 15,000 business customers.
Nigerian Access Bank is to acquire Diamond Bank in an attempt to create the largest financial institution in terms of deposits and of assets in Nigeria. It is understood (although few details are available) that Access might have offered more than 3 naira per share currently trading at 0.87 naira (EUR 1 equals to approximately NGN 411.66). The combined bank will have 27 million customers and 500 branches.
This transaction will also bring to an end what is considered to be a troubled investment by Carlyle Group who paid USD 147 million for 18% of shares in Diamond in 2014.
The average level of non-performing loans of Nigerian banks is around 15%.
Standard Chartered has agreed to sell its private equity division by transferring majority of its investment portfolio to Intermediate Capital Group, a London-based asset manager running a USD 38 billion portfolio. The transaction is valued at USD 997 million. The investment will be managed by a newly formed company established by the former Standard Chartered private equity team, Affirma Capital. ICG has also agreed to provide USD 400 million to Affirma for new investment.
The bank will take a restructuring charge of USD 160 million from the transaction.
Source: www.reuters.com, bloomberg.com
Deal Ideas Cooking
Bloomberg reports, that, while still in exploratory phase and named as one of the options only, the discussions on possible merger between Deutsche Bank and Commerzbank are still continuing. Restructuring of Deutsche into a holding company that would make a possible merger easier might trigger a significant tax consequence due to asset revaluation requirement. To avoid that, the possibilities of amending German tax law have been also discussed, according to Bloomberg sources.
Deutsche’s cost-to-income ratio remains at 93%, while its return on equity is below 1%. The bank lacks profits to add to the capital, and any significant restructuring charges would further erode the already thin capital base. Acquisition of Commerzbank, which trades below book value, if done as an all-share deal, would create negative goodwill. At a bid premium of 30%, such transaction could boost the top tier capital by EUR 11 billion.
Finance minister Olav Scholz has been quoted as saying that “nobody in the Federal Ministry of Finance has sleepless nights because of the Deutsche Bank, including myself”. The German media speculates that the government’s actions in this matter might be forced by either a foreign takeover threat, or a need of a bailout be either bank. It is suggested though that for the government it would be better to look like a white knight rather than a matchmaker in this deal.
Without naming the target, the CEO of Qatar Financial Centre confirmed to Handelsblatt that Qatar will soon announce additional investment in “a large financial institution in Germany” where they already have equity interest. Qatar’s ruling family holds 6.1% of shares in Deutsche Bank plus some derivative positions that increase their position to above 9%.
A day later Qatar Financial Centre issued a statement distancing itself from this statement.
Two medium-sized Spanish commercial banks, Liberbank and Unicaja, have announced the start of potential merger talks that could create the 6th largest bank in the country with combined assets of EUR 95.9 billion.
Management of the USD 260 million Global Credit Fund, originally raised by the Abraaj Group (now in a court-supervised restructuring after allegations of misuse of investors funds), is expected to be taken over by NBK Capital Partners, the private equity arm of a National Bank of Kuwait, against a nominal payment. The fund had made 3 investments before the collapse of Abraaj earlier this year.
Inspired by the successful floatation of Arion (the reincarnation of Kaupthing Bank) which attracted investors like Och-Ziff, Goldman Sachs and Eaton Vance earlier this year, the Icelandic government has released a white paper suggesting a partial of complete sale of government’s stake in Islandsbanki (known as Glitnir before the crisis of 2008) to a strategic buyer (a not specified “foreign bank”) and a listing and sale of part of its shares in Landsbankinn. The state-owned 100% of shares in Islandsbanki and 98.2% of shares in Landsbankinn are currently valued at USD 2.4 billion. The paper is reported to suggest a deadline of 2020 for both transactions.
According to the German savings banks association, the shareholders of Landesbanken are considering merging them “to reduce the number down from 5 and to strengthen the businesses”. The combined assets of those banks would amount to EUR 682 billion which is more than those of Commerzbank, the second largest publicly listed bank in Germany.
One of possible scenarios envisages to start with merging Helaba and NordLB, the latter of which is currently seeking for EUR 3 billion to replenish its capital base.
Another Spanish bank, Bankia, has agreed to sell a portfolio of non-performing loans and assets. The Spanish media and FT report that this is a portfolio of toxic assets with a face value of EUR 3.07 billion (comprising EUR 1.65 billion of foreclosed real estate and EUR 1.42 billion of non-performing loans at their gross book values) and that the buyer is Lone Star, a US private equity group. Bankia will retain a 20% ownership in the company formed to deal with the foreclosed real estate while Loan Star will own 100% of the NPL portfolio. The transaction, media believe, might fetch as much as EUR 1 billion to the sellers. Bankia was bailed out in 2012 at a cost of EUR 22.4 billion and Spanish government still keeps a 61% stake in it.
At the end of September the NPL ratio of Spanish banks stood at 6.2% which is above the 5% as required by ECB, but significantly lower than the 13.6% level recorded at its peak in 2013. Over the first 9 months of 2018 Spanish banks have contributed EUR 33.3 billion of Europe’s total of EUR 77.1 billion in distressed real estate asset sales.
Valued by Markets
Despite a strong US economy and rising interest rates the 6 largest US banks – Citi, BofA, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo – have lost on average 21% of their share price during 2018. All 6 banks are now trading at or below 10x their earnings (Goldman Sachs at just 7x) while the return on equity is in comfortable double-digits.
Credit Suisse announced that its board has approved a share-buyback up to CHF 1.5 billion in 2019 and is expected to make at least CHF 1.0 billion “subject to market and economic conditions”. The bank expects similar plans to be implemented in 2020 as well. In addition, the dividend is expected to be raised by at least 5% a year.
On December 14 the US S&P 500 financial sector index closed at being 20.1% below its January peak and thus crossed the 20% threshold which is used to define the start of a bear market.
Revolut, the UK-based fintech, has secured a European banking license in Lithuania. Valued at USD 1.7 billion in its latest round of fundraising, Revolut claims as having 150,000 in Lithuania and planning to add full current accounts, business and consumer loans and overdrafts to its product offering. Customer deposits with Revolut will be covered up to EUR 100,000 under the European Deposit Insurance Scheme.
The company is planning to expand into UK, France and Poland in 2019. It will also apply for a separate UK banking license and will seek a Luxembourg e-money license as well.
Closer to Home
Lithuania’s non-banking financial group, Orion Securities, has confirmed being “in final stages of negotiations regarding a sizeable shareholding” with an unnamed medium-sized Western European bank.
At least 1,400 new neo-banks, payment providers and fintech companies have launched in Europe since 2005, according to Accenture.
A Thought Worth Noting
“The banks are never going to be terribly good at identifying what would cause them to fail. There will be a recession at some point, and people will lose money.”
Paul Tucker, former deputy governor, Bank of England
See you again next time!