Banking M&A Digest #12

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

by Aivars Jurcans

Buying, Selling, Merging

Alibaba Group Holding, an e-commerce company, has increased its stake in China International Capital Corp (an investment bank established in 1995 and part-owned by Morgan Stanley until 2010) Hong Kong-listed shares to almost 12% at an estimated cost of USD 230.6 million. This has increased Alibaba’s share in CICC’s total equity to 4.84%.

Source: Reuters, Bloomberg

Israel’s Bank Leumi which holds 80% of shares in Leumi Card (the remaining 20% are held by Azrieli Group) confirmed that the sale of the credit card unit to Warburg Pincus for USD 691 million will be completed on February 26.

Source: Reuters

Tiger Global, a US hedge fund, is said to have sold all of its shares (approximately 2.5%) in Barclays. It is estimated that Tiger had spent more than USD 1 billion in November 2017 to build up its stake. 

Source: Financial Times

HNA, a Chinese company, has decreased its stake in Deutsche Bank from 7.64% to 6.3%, according to a filing with SEC, by selling 26.8 million of shares for EUR 363.4 million (significantly above the current market price). HNA which at some point held almost 10% of Deutsche’s shares is said to be in the process of disposing of its entire stake. With the current 6.3% stake HNA still remains the largest single shareholder in Deutsche.

Source: The New York Times, Bloomberg, Financial Times

Ant Financial, a consumer finance arm of China’s e-commerce company Alibaba, agreed to acquire WorldFirst, a currency exchange, in a deal said to be valued at USD 700 million. It is expected that WorldFirst will continue as a UK-based and regulated business with global operations after the transaction.

Source: Reuters, Financial Times

Deal Ideas In Process

Delek Group is said to be in advanced talks to sell its remaining 30% stake in Phoenix Holdings, an Israel’s insurance company, for USD 442 million to comply with the regulation prohibiting conglomerates from holding stakes in both financial and non-financial businesses.

Source: Reuters

Fire, a Messina, Sicily, based bad loan investor owned by Bommarito family, which currently manages EUR 9 billion, is aiming at approaching the EUR 10 billion assets under management threshold in 2019 (which “separates big players from small and medium-sized ones”) as it works towards an eventual IPO.

Source: Reuters

Radian, a provider of insurance that covers home buyers who take out mortgages with down payments of less than 20%, is said to be in talks with a group of investors including Apollo Global Management, Centerbridge Partners and Canada Pension Plan Investment Board. Radian has a market value of c. USD 4.5 billion.

Source: Bloomberg

Abu Dhabi Islamic Bank, the 2nd biggest UAE lender, is said to be considering its options either to combine with a larger entity or to acquire a smaller institution. The bank has assets of c. USD 34 billion and a market value of USD 4.2 billion. It has been granted permission to have foreigners holding up to 25% of its shares.

Source: Bloomberg

Thanks, But No Deal

Navient, a Wilmington-based student-loan servicer, has rejected a USD 3.2 billion takeover bid from Canyon Capital, a hedge fund, and Platinum Equity, a private equity firm. Navient’s board believes that the offer which represents a 6.6% premium over the closing share price undervalues the company.

Source: Reuters

Valued by Markets

Scor, a French reinsurance group, has improved its property & casualty business combined ratio (a measure of claims and costs as a proportion of premiums) from 103.7% in 2017 to 99.4% in 2018. The group’s overall return on equity has increased by 1 percentage point to 5.5%. Scor is the smallest of Europe’s reinsurers, with a balance sheet of just 1/6 of Munich Re’s.

Source: Financial Times

The UK’s largest retail bank, Lloyds, reported that its net interest margin (the difference between what it pays for funds and what it receives from lending) in 2018 was 2.93%, compared to 2.86% in 2017. The bank expects it to remain close to 2.9% in 2019. 

Source: Financial Times

HSBC’s return on equity in 2018 was 8.6%; analysts believe that achieving the target returns of 10% would be difficult in short to medium term. The bank’s adjusted “jaws ratio” (a measure of income growth compared to expense growth) was minus 1.2%. Its return on tangible equity has increased by 1.8 percentage points to 8,6% in 2018, which is 40 basis points below its estimated cost of equity. The bank’s shares are trading at 1.1x times its tangible net assets.

Source: Financial Times

ABN Amro, a Dutch bank, has reported return of equity of 11% (significantly higher than most of its European rivals) while its shares are trading at no more than tangible book value. Analysts believe that exiting trade finance, shipping and energy related businesses could liberate at least EUR 2 billion of additional capital.

Source: Financial Times

Royal Bank of Scotland reported a common equity tier 1 ratio of 16.2%, lower than 16.7% at the end of Q3 2018 because of the planned dividend payment but well above its medium term target of 14%. The bank acknowledged that meeting its 2020 target of reducing its cost-to-income ratio to below 50% is becoming “increasingly challenging”.

Source: Financial Times

Allianz, a German insurer, reported return on equity of 13.2% (a 140 basis point increase). Its Solvency II ratio, a key measure of balance sheet strength, remained unchanged at 229%, well above the minimum target of 180%. The group has announced a new EUR 1.5 billion share buyback program to be completed by the end of 2019. 

Source: Financial Times

Credit Suisse reconfirmed its target return on tangible equity for 2019 of 10% to 11% (it reported ROTE of 3% in Q4 2018 and 5.5% for the whole year 2018). The bank intends to buy back CHF 1.5 billion of stock in 2019.

Source: Financial Times

Commerzbank’s return on tangible equity increased to 3.4% in 2018, or marginally above 1/2 of the 2020 target of 6%. The bank’s common tier 1 equity ratio fell to 12.9% compared to 14.1% the year before. Commerzbank has also adjusted its targeted CET1 ratio to 12.75% from the previous minimum of 13%.

Source: Financial Times

Credit Agricole, a French bank, is said to have surpassed the main objectives of its Medium-Term Plan 1 year ahead of schedule. A new plan for the period until 2022 will be introduced in June. At the end of 2018 the bank’s CET1 ratio was 11.5%, down form 11.7% the year before.

Source: Financial Times

Planning, Investing, Moving

A JV between Lloyds and Schroders will drop the Lloyds name to become Schroders Personal Wealth. It intends to target the mass affluent UK financial planning market (clients with minimum GBP 100,000 in investable assets) and to become one of the top 3 financial planning businesses.

Source: Financial Times

Allianz, an insurer, has increased the size of its tech investment fund to EUR 1 billion. Its current portfolio includes investments in Go-Jek (an Indonesian ride-hailing company), N26 (a German mobile bank), and Lemonade (a US insurance startup).

Source: Bloomberg

Following its real estate strategy to own, rather than rent, Citi is said to be in talks to acquire its London skyscraper office at 25 Canada Square in Canary Wharf from AGC Equity Partners for about GBP 1.2 billion. 

Source: Financial Times, Bloomberg

JPMorgan Chase has announced a plan to launch “JPM Coins” which will be transferable over a blockchain between the accounts of the bank’s clients to expedite dollar-based payments for its corporate customers. The technology is expected to facilitate near-instantaneous settlement and to mitigate the counterparty risk. 

Source: Financial Times

Up-and-Comers

GoCardless, a UK digital payments startup that allows clients to collect recurring payments online using bank account details rather than card numbers, has raised USD 75 million from investors including GV (former Google Ventures), Adam Street Partners and Salesforce Ventures. The company claims to have 30,000 corporate customers and to process USD 10 billion of payments annually. The funds raised in this round will be used to finance its further international expansion.

Source: Financial Times

Closer to Home

Swedbank’s shares lost 12% (wiping out USD 3 billion in market value) after the public allegations that USD 5.8 billion might have been “funnelled between suspect accounts” in Swedbank and Danske Bank in the Baltics involving 50 Swedbank’s customers. 

Source: Financial Times

Lithuania has licensed more than 80 companies becoming the 2nd largest fintech centre in Europe (after UK) while Bank of Lithuania has less than 10% of the combined workforce of the Bank of England and Financial Conduct Authority. This has caused concerns and discussion about the regulatory capacity and supervision quality.

Source: Financial Times

In response to the money laundering scandal (EUR 200 billion through its Estonian branch over a 9 year period) Danske Bank will close all operations in the Baltics and Russia. The European Central Bank has launched a formal investigation of the conduct of Estonian and Danish regulators.

Source: Financial Times

Important Numbers

To secure deals, private equity managers are paying between 11x and 12x times EBITDA, a higher multiple than at the previous peak of the market in 2007, along with leverage multiples about 6x times EBITDA.

Source: Financial Times

China’s banks wrote down or sold off an estimated USD 258 billion in bad debt in 2018, the highest level in 20 years.

Source: Financial Times

A Thought Worth Noting

“… even if you are paranoid, it still might be that everyone is out to get you.”

The FT View

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).