Banking M&A Digest #11

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Lonely Businessman Alone in the Beach

About anyone and anything anywhere related to banking and making money with money - 

by Aivars Jurcans

Buying, Selling, Merging

Shore Capital Markets, a London-based stockbroker, has agreed to acquire a competitor, Stockdale Securities, in a GBP 9 million transaction. The price is said to be close to Stockdale’s book value of GBP 4.9 million plus further GBP 4 million that is subject to performance. The deal will create the 4th largest specialist broking and advisory company in the UK.

Source: Financial Times

Hound Partners, a US hedge fund, has disclosed a 5.05% stake in Metro Bank. This would make Hound Partners the 6th largest shareholder in Metro.

Source: Reuters

Morgan Stanley has acquired Solium Capital, a Canadian stock plans administrator, for USD 900 million, a 43% premium over the market price. The deal values Solium (which sees itself as a technology company) at 75x times its trailing EBITDA. The transaction is expected to close by June 30.

Source: Financial Times, Reuters

Having operated in the country since 1997, Scotiabank, a Canadian lender, has agreed to sell its El Salvador banking and insurance businesses (Scotiabank El Salvador with its subsidiaries and Scotia Seguros) to Imperia Intercontinental. The sale is said to generate USD 170 million of losses for Scotiabank. 

Source: Reuters

ATP, Denmark’s pension fund with USD 120 billion under management, has increased its holding of Danske Bank’s shares from 1.05% in the end of 2017 to 1.8%.

Source: Reuters

Unipol, an insurer, has agreed to sell Unipol Banca, its banking unit, to BPER Banca, for a cash consideration of EUR 220 million. The deal is said to increase BPER Banca’s assets by around 17%.

Source: Reuters

Unipol has agreed to acquire a non-performing loan portfolio with a gross value of EUR 1.3 billion from BPER Banca for a payment of EUR 130 million.

Source: Reuters

BPER Banca has agreed to acquire full control of Banco di Sardegna in a transaction involving share swap and sale of a hybrid bond valued at EUR 180 million. The purchase of minority shares is said to increase BPER’s core capital by 50 basis points.

Source: Reuters

KKR, the US buyout group, has agreed to acquire 50% in Soderberg & Partners, a Nordic independent pension adviser and non-life insurance broker, in a transaction valuing the company at USD 1 billion. KKR is expected to grow the business through further acquisitions of smaller players in Sweden, Denmark, Norway and the Netherlands.

Source: Financial Times

BB&T and SunTrust, two of the largest banks is south-eastern US, have agreed to merge in the largest transaction in the US market since the financial crisis. The transaction is to create an institution with USD 441 billion in assets, USD 324 billion in deposits and USD 301 billion in loans and with a market value of USD 66 billion. 

This “merger of equals” is said to promise cost savings of USD 1.6 billion by 2022 and to generate an internal rate of return of c.18%. Reduction of operating expenses by more than 10% is expected to result into an efficiency ratio of 51%, the lowest among the US consumer banks.

 Source: Reuters, Financial Times

Deal Ideas In Process

Prathap C. Reddy and family might be planning to sell their 41% of shares in Apollo Munich Health Insurance for about USD 170 million in the next 6 months, according to Bloomberg. Some earlier reports had indicated that Munich Re might be willing to sell its stake as well and is in talks with HDFC Ergo General Insurance.

Source: Bloomberg

President Erdogan confirmed that the 28% stake in Isbank, Turkey’s largest listed lender, which is currently held by the opposition Republican People’s Party (CHP) will be transferred to the Treasury “sooner or later”.

Source: Reuters

Standard Chartered, a London-based bank, is said to be considering options for its Islamic banking unit in Malaysia, Standard Chartered Saadiq, including a potential sale. Standard Chartered Saadiq had USD 165 million in net assets at the end of Q3 2018. Bloomberg reports that Standard Chartered had categorically denied the information about potential sale.

Source: Bloomberg

Mediobanca, an Italian investment house which is the largest shareholder in Generali, an insurance company, with 13.5% stake could be prepared to sell even more than 3% in case of deal opportunities in wealth management and advisory activities.  Mediobanca reported a CET1 ratio of 13.9% at the end of December which is said to be well above the regulatory requirements.  

Source: Reuters

The British government may consider partial sell-down of its shares in Royal Bank of Scotland after the annual results announcement. The government currently owns 62% in the bank which is valued at about GBP 18.4 billion. RBS shareholders have agreed that the bank may acquire up to 5% of its own shares in a “directed buyback”  when the government sells.

Source: Bloomberg

Visa has increased its offer for Earthport, a UK payments group, to GBP 247 million in a bidding war with Mastercard. The latest offer is 12% above the Mastercard’s bid and 23% higher than Visa’s original offer in late 2018.

Source: Financial Times, Reuters

Valued by Markets

Several Deutsche Bank’s largest shareholders are calling for cuts to its US investment banking operation, suggesting even to shrink it below the USD 50 billion asset threshold (as opposed to the current USD 132 billion of assets). In Q4 2018 the investment bank’s return on tangible equity was negative 2.2%.

Source: Financial Times

ABN Amro, a bank where Dutch government still holds a 56% stake, confirmed that it was on the right track to meet its 2019 forecasts. The bank has recorded higher impairment than expected “at this point in the cycle” in some areas – companies in the diamond sector and those with exposure to low oil prices. 

Source: Financial Times

Deutsche Bank has had to pay significantly more than other international banks on the euro debt market for its recent borrowings – 180 basis points over the benchmark for a 2-year debt of EUR 3.6 billion and 230 basis points – for a 7-year debt. Deutsche’s CDS (credit default swaps that pay out if a company defaults on its debts) trade 20 basis points higher than UniCredit’s. 

Source: Financial Times

UniCredit’s fully loaded core tier one ratio has decreased from 12.1% as at the end of Q3 2018 to 12.07% at the year end.  The overall ratio of non-performing loans to assets has been reduced by 2.65 percentage points year-on-year to 7.7%.

Source: Financial Times

Beazley, an insurer in the Lloyd’s of London market, has reported pre-tax profits of USD 76 million (USD 168 million in 2017) reducing its return on equity by almost a half, to 5%.

Source: Financial Times

Societe Generale, a French bank, has lowered its target return on tangible equity by 2020 from 11.5% to 9-10%. The bank is still aiming for core tier one capital ratio of 12% in 2020 (11.2% in 2018) and is going to reduce its risk-weighted assets by EUR 8 billion until the end of next year.

Source: Financial Times

Zurich, the insurance group, has reduced its costs by USD 1.1 billion (from the target of USD 1.5 billion set in 2016) and has reported return on equity of 12.1% in 2018, which is above the target.

Source: Financial Times

Planning, Investing, Moving

Banco Santander, a Spanish bank, has decided not to repay (or “call”) its EUR 1.5 billion additional tier 1 (AT1) capital bond. This instrument is considered the riskiest class of bank debt and has perpetual maturity; nevertheless, there is a gentleman’s agreement that AT1 bonds will be repaid at the first opportunity, usually 5 years or more after they are sold. Santander’s decision not to call the bond is said to be the first such instance in the AT1 market.

Source; Financial Times

Deutsche Bank has made another equity injection of EUR 500 million into its subsidiary in India increasing its capital to EUR 1.9 billion. The bank intends to expand retail and lending to SMEs and to double its retail revenues over the next 5 years.

Source: The Economic Times

Up-and-Comers

The UK-based Starling Bank which offers app-based current accounts and has around 460,000 customers has raised GBP 75 million in an investment round lead by Merian Global Investors, an asset manager. Starling is planning to launch across Europe in 2019, probably starting with Ireland, France and Germany.

Source: Financial Times

Providence Equity Partners has received offers for Blackboard Transact, a unit of education-software company Blackboard Inc. which enables students to use their campus ID to pay for goods and services as well as for building access and attendance monitoring. The potential transaction is said to fetch up to USD 720 million.

Source: Bloomberg

Reuters reports that Vitruvian, a buyout group, is preparing for a potential sale or an IPO of Smava, a German fintech operating an internet platform allowing clients to choose between loans from 25 banks and private creditors. Smava has raised USD 135 million in total over the years and has brokered loans of EUR 1 billion in 2017. The potential transaction is said to fetch up to USD 500 million. 

Source: Reuters

Nav, a Salt Lake City-based startup that provides small businesses free access to their credit reports from major consumer and commercial credit bureaus, has raised USD 44 million from investors including Goldman Sachs and Point72 Ventures.

Source: Reuters

Tink, a Swedish technology startup offering app for people to get a snapshot of their spending across all their bank accounts, has raised EUR 56 million in its latest funding round. The company has SEB, Nordea and ABN Amro among its backers and is said to be valued at approximately EUR 240 million.

Source: CNBC

SoftBank’s Vision Fund has agreed to invest USD 440 million in OakNorth, a UK banking startup specialised in lending to SMEs (it has a loan book of c.USD 3 billion) and on licensing its automated lending system to other banks. The deal is said to value OakNorth at USD 2.8 billion.

Source: Reuters, Financial Times

Important Numbers

German banks are still among the most exposed lenders to Russia with USD 7 billion outstanding in Q3 2018, according to the Bank for International Settlements; it is less than 1/3 of the USD 22.5 billion recorded in 2013.

Source: Reuters

Highly leveraged loan deals (when debt is more than 5x times EBITDA) account for about 1/2 of new US corporate debt.  According to Moody’s, about 80% of leveraged loan market today can be considered “covenant-lite” (compared to 25% before the global financial crisis).

Source: Financial Times

A Thought Worth Noting

“[This term] “the bezzle” describes the amount of undiscovered embezzlement lurking in the financial system.”

John Kenneth Galbraith, economist

See you again next week!

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Aivars Jurcans has more than 20 years of corporate finance and investment banking experience. His services are currently available through MURINUS ADVISERS (www.murinusadvisers.com).

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