Banking M&A Digest #13

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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

TMB Bank, which has among its shareholders the Thai government (25.92%) and Dutch ING (25%), has signed a non-binding agreement to merge with Thanachart Bank, another Thailand bank, in a deal valued at USD 4.47 billion. The transaction will create the 6th largest bank in the country with assets of 1.9 trillion baht and 10 million retail customers.

Source: Reuters

The Indonesian lenders Bank Mandiri, Bank Rakyat Indonesia, Bank Negara Indonesia and Bank Tabungan Negara and Telekomunikasi Indonesia will merge their mobile services into a single platform, LinkAja, to compete with the two dominant players in the growing digital payments market, Go-Jek and Ovo. Indonesia’s digital payments rose 280% and transaction volumes 210% in 2018.

Source: Financial Times

Deal Ideas In Process

Standard Chartered has indicated its intention to sell its 45% stake in Permata, an Indonesian bank, as a “non-core” holding. The new 3-year strategic plan suggests restructuring of operations in 4 underperforming markets – Korea, Indonesia, the UAE and India. It is estimated that the sale could fetch close to USD 1 billion, while reducing risk weighted assets by 3.5% (USD 9 billion).

Source: Financial Times

Ping An Insurance, a China’s insurer, is said to be preparing an IPO of OneConnect, a financial management portal, which is expected to achieve a valuation of about USD 8 billion.  

Source: Bloomberg

Having completed its acquisition of Leumi Card, Warburg Pincus, a US private equity firm, intends to bring in 3 Israeli strategic partners – Menora Mivtachim, Clal Insurance and Allied Group. Each partner initially will hold 5% of shares. Leumi Card is expected to change its name to Max. 

Source: Reuters

Berkshire Hathaway is said to be in advanced talks to sell Applied Underwriters workers compensation unit to a consortium of insurance firms at around the value of its book of business.

Source: Reuters

SIA, an Italian payment services group, is said to be considering an IPO which could value the company at “at least” EUR 3.5 billion (based on EBITDA of EUR 200 million in 2018).

Source: Reuters

Entirely German Story

Cerberus, a PE firm holding 3% of shares in Deutsche Bank and 5% in Commerzbank, is said not to oppose a possible merger between both banks. The merger would create a bank with an equity value of close to EUR 25 billion.

Source: Reuters

Thanks, But No Deal

Home Credit, a Czech consumer finance group, has withdrawn from a planned transaction to sell its Czech and Slovak operations and Air Bank to MONETA Money Bank, a 100% free float owned bank. The original proposed transaction value had been USD 820.4 million but MONETA is said to have lowered their offer recently.

Source: Reuters

Not So Fast

Provident Financial, a Bradford-based high interest rate lender to those who cannot get bank loans, received a non-solicited all-shares offer from Non-Standard Finance, a competitor run by Provident’s former CEO, John van Kuffeler. The offer values Provident at GBP 1.3 billion. The UK Competition and Markets Authority has served the companies with an initial enforcement order that stops the parties from signing a deal but permits discussing the terms of potential transaction.

Source: Financial Times, Reuters

Valued by Markets

Metro Bank, a UK lender, will target cost-to-income ratio of 55%-60% in the medium term, down from 88% reported in Q4 2018, through “automation of back-office processes and shared services”. 

Source: Bloomberg

JPMorgan Chase has reconfirmed its return on tangible equity target of 17%, which is the level already achieved. The bank admits the possibility to earn higher returns over the next year or two, or more, but acknowledges that “the further out you go the less confidence we can have that we won’t see the end of the economic cycle”.

Source: Financial Times

Standard Chartered aims at increasing its return on equity from the current 4.6% to 10% by the year 2021. The bank’s common equity tier one ratio at the end of 2018 was 14.2%, (up from 13.6% the year before) which is above its new target of 13% to 14%. Analysts estimate that StanChart could afford a share buyback of up to USD 1.3 billion. 

Source: Financial Times

Bank of Ireland’s, which is 14% government-owned, cost-to-income ratio in 2018 remained unchanged at 65%, significantly below its 2021 target of 50%. The share of non-performing loans has been reduced by 24%, to EUR 5 billion, or to a non-performing exposure ratio of 6.3%. The bank’s shares are trading at 0.7x times its tangible book value.  

Source: Financial Times

Axa, a French insurer, reported that its Solvency II ratio (a measure of capital available as a proportion of the minimum required) decreased by 12 points – to 193% – compared to the end of 2017.

Source: Financial Times

Planning, Investing, Moving

Caixa Economica Federal, a Brazilian state-owned bank, is said to be close to selling its USD 2.4 billion stake in Petroleo Brasileiro, an oil company.  This deal is still subject to the publication of a revised presidential decree authorising the sale.

Source: Reuters

Everbright Bank, a China-based lender, is said to be in discussions to invest into a joint investment fund set up by China and Saudi Arabia with a target size of USD 20 billion. The fund will invest in strategic projects in both countries.

Source: Bloomberg

As part of a rebranding exercise, almost all Bank of America’s investment businesses will now be Merrill branded (shortening Merrill Lynch to just Merrill), while its investment banking and trading units will be branded Bank of America.

Source: Financial Times

Nomura is said to be making a USD 10 million investment in exchange for a 22% stake in Aim2, an artificial intelligence venture established by Brevan Howard, a hedge fund. Nomura will become the first third party to deploy the software developed by Aim2.

Source: Financial Times

Closer to Home

Swedbank’s shares have been trading at 1.6x times its tangible book value, still not too high a multiple considering that its return on tangible equity is expected to exceed 16% in 2019. Meanwhile, Danske Bank, another lender caught in money laundering scandal, expects achieving ROTE of 12% while its shares are traded at just 0.7x times tangible book value.

Source: Financial Times 

LHV Pank, an Estonian lender, acquired a EUR 12.2 million loan portfolio of Versobank (in liquidation).

Source: KPMG

Important Numbers

The median valuation of publicly traded asset management companies (measured at EV/EBITDA) was about 6.2x times in 2018, well below the peak of 11x times recorded in 2011.

Source: Financial Times

[Berkshire Hathaway’s] cash, invested primarily in short-term Treasuries, amounted to USD 112 billion by the end of 2018.

Source: Financial Times

Of nearly 11,000 M&A deals announced in the US in 2017, 98% were below a USD 1 billion transaction value. Houlihan Lokey, a leading mid-market firm, earned more than USD 500 million in 2017 on 226 closed deals, leading to an average fee per deal of USD 2.4 million.

Source: Financial Times

A Thought Worth Noting

“What the wise man does in the beginning, the fool does at the end.”

Cole Smead, portfolio manager, Smead Capital Management

See you again next week!

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You will find all the previous issues of Digest at https://murinusadvisers.com/blog/

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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