Banking M&A Digest #16

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Lonely Businessman Alone in the Beach

My weekly summary notes of banking and financial services news worldwide - 

by Aivars Jurcans

Buying, Selling, Merging

Bank of America together with a group of investors is said to have acquired non-performing loans to an Indian maker of cast iron pipes, Jayaswal Neco Industries, for USD 479 million in an all-cash deal. The sellers, led by State Bank of India, are said to have taken a haircut of 30%.

Source: Bloomberg

Webb (“Worldwide Electronic Bulls & Bears”) Traders, a Dutch electronic trader of European equities, futures and options, has acquired GST Capital, a UK-based proprietary trading firm, for a consideration of “single digit millions”.

Source: Financial Times

Fidelity National Information Services (FIS), a Florida-based financial tech firm, has agreed to acquire Worldpay in a deal worth USD 43 billion (a 13% premium over the Worldpay’s share price). The combined entity is expected to create USD 500 million of annual revenue synergies by the end of year 3 and USD 400 million in annual cost savings. It estimates to be able to generate more than USD 4 billion in free cash flow annually and to reduce its net debt-to-ebitda from 3.5x times to 2.7x times over the next few years.

Source: Financial Times

Mechanics Bank, a California-based lender, has agreed to acquire significant share of Rabobank’s US operations in a transaction valued at about USD 2.1 billion. Not included in the transaction are Rabobank’s food and agribusiness assets which are to be transferred to Rabo AgriFinance.

Source: Bloomberg

Morgan Stanley has agreed to sell its business that administers alternative-investment feeder funds to iCapital Network, a financial technology firm. This transaction will increase the assets serviced by iCapital by USD 12 billion. The arrangement is expected to simplify  and automate some tasks, while the investment decisions will still be made by Morgan Stanley

Source: Bloomberg

VTB, a Russia’s state bank, has reached agreement to transfer its 25% stake in Evrofinance Mosnarbank, a Russian-Venezuelan lender that is under US sanctions, to the Russian state’s Federal Property Management Agency for free.

Source: Reuters

Caixapar, a unit of Brazilian state lender Caixa Economica Federal, will exercise its option to buy half the shares in Banco Pan’s capital increase of USD 105 million. Caixapar and Banco BTG Pactual, an investment bank, will each hold a 41.7% stake in Banco Pan after the transaction.

Source: Reuters

Charter Court Financial and OneSavings have agreed to merge creating one of the UK’s largest specialist lender with a combined market value of GBP 1.75 billion. The merger is expected to generate pre-tax cost savings of GBP 22 million by the 3rd year. 

Source: Reuters

Oleg Tinkov, the founder of and major shareholder in TCS Group (a Russian lender) has reduced his stake from 48.3% to 43.8% through the sale of GDRs for USD 150 million.

Source: Reuters

Deal Ideas In Process

Mubadala Development Co, an Abu Dhabi state-backed investment firm, is said to be in process of seeking bids from parties interested to acquire Falcon Private Bank, a Zurich-based bank with assets of at least USD 5 billion.

Source: Bloomberg

AXA, a French insurer, intends to reduce its shareholding in AXA Equitable Holdings, a US life insurance business, from the current 60% to below 50% in a secondary offering.

Source: Reuters

LGT, a Liechtenstein private bank, is on the lookout for acquisitions, “primarily in the markets where we already have platforms”, according to Prince Max von und zu Liechtenstein, the CEO.

Source: Reuters

OTP, a Hungarian bank, is reported as being the lead bidder for Abanka, the Slovenian state-owned 3rd largest lender, with an offer of about EUR 300 million.

Source: Reuters

Allianz, an insurer, is said to be in early stages of exploring combining its asset management business with DWS, majority owned by Deutsche Bank. Such transaction might create a business with EUR 1.17 trillion of assets under management. Deutsche’s 78% stake in DWS could be valued at about EUR 4.3 billion.

Source: Reuters, Bloomberg

Network International, a Dubai-based payments group providing merchant acquiring and point-of-sale terminals services, is said to be preparing to float with the London Stock Exchange at an expected valuation of USD 3 billion. The potential IPO is likely not to involve an issue of new stock but rather allow its current shareholders to sell at least 25% of the company.

Source: Financial Times

When Deutsche Bank Meets Commerzbank

Analysts believe that the combined entity would be classed as a “global systemically important bank” that would require it to hold even more capital. This “modern-day poison pill” is estimated to add EUR 2.7 billion to the cost of the deal.

Source: Financial Times 

The only large shareholder supporting the merger idea originally was said to be Cerberus, a 3% shareholder in Deutsche Bank and 5% owner in Commerzbank. Another unnamed shareholder who has been opposing the idea so far has recently acknowledged that the momentum towards a deal looks all but impossible to stop.

Source: Financial Times

Several large shareholders in Deutsche Bank have expressed their concerns about the merger idea: (1) it would not address Deutsche’s most pressing problem of its corporate and investment bank’s performance, (2) it could derail the Postbank integration that Deutsche has been struggling with for almost 10 years already, and (3) both banks have inefficient and dated IT systems that are not easy to integrate.

Source: Financial Times

Thanks, But No Deal

The Dutch auction of Asia-Pacific Bank’s shares run by the Russia’s Central Bank ended with no result as neither of the registered parties who had conducted prior due diligence (Moscow Credit Bank and Sovkombank, both Russian lenders) bid even at a minimum price of RUB 6 billion. The next attempt to sell the bank is likely to take place in 2020.

Source: rbc.ru

Valued By Markets

UBS has increased its litigation provisions by USD 382 million in response to EUR 4.5 billion penalty for helping rich clients to evade tax. This would reduce the bank’s common equity tier 1 ratio (the key measure of capital strength) to 12.9%, slightly below its target level.

Source: Financial Times

Assicurazioni Generali, the Italian insurer, reported that in 2015-2018 it had exceeded all its targets and has achieved return on equity that averaged 13.4% over the period. 

Source: Financial Times

Just Group, a UK life insurer, plans to raise close to GBP 400 million in a combined equity and debt issue to strengthen its balance sheet. This should push up its solvency ratio (a measure of capital available as a proportion of the minimum required) from 136% to 160%.

Source: Financial Times

Planning, Investing, Moving

Deutsche Bank is said to be setting up a unit in India specialised in buying and restructuring non-performing loans. India has the highest NPL ratio (10.3%) among the largest economies, followed by Italy (9.9%), according to IMF. 

Source: Bloomberg

Rainy-Day Preparations

France’s High Council for Financial Stability has increased the “countercyclical capital buffer” requirement from 0.25% to 0.50% of bank’s risk weighted assets in proportion to their French exposures.

Source: Financial Times

Up-And-Comers

OakNorth, the only UK neobank which has turned to a sustained profit, has been valued at GBP 2.8 billion in its latest fundraising round. It has doubled its business loan portfolio from GBP 850 million to GBP 2.2 billion last year.

Source: Financial Times

Invesdor, a Helsinki-based crowdfunding company, has agreed to acquire Finnest, its Austrian peer, in an all-share deal. The transaction is expected to expand Invesdor’s presence in German-speaking markets and add debt financing to its equity-crowdfunding platform.

Source: Reuters

Important Numbers

The amount of financial assets to be moved from the UK to Europe due to Brexit are estimated to reach EUR 1.2 trillion.

Source: Financial Times

The size of China’s shadow lending industry (loosely regulated high-yield lending outside the formal banking sector) is estimated to amount to USD 9.1 trillion, equal to 23.5% of China’s total banking sector assets.

Source: Financial Times

More than 6,200 banks operate across the European Union, down from 8,500 in 2007.

Source: Bloomberg

The average European bank has sovereign debt exposure equal to 170% of its core tier 1 capital; about 60% of sovereign holdings are of their home government’s debt.

Source: Bloomberg

Thoughts Worth Noting

“History shows [that] M&A activity meaningfully slows 9 to 13 months following an [yield curve] inversion. [The US treasury yield curve inversion was recorded in December 2018 for the first time in more than 10 years].”

Mark Shafir, global co-head of M&A, Citigroup

“In the face of geopolitical uncertainty the risk of a re-pricing of financial assets remains elevated.”

Bruno Le Maire, finance minister, France

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 .

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