Banking M&A Digest #18

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

by Aivars Jurcans

Buying, Selling, Merging

Emirates NBD, a Dubai-based bank, has confirmed that it will acquire Denizbank, the Turkey’s 5th largest private bank, from Russia’s state-owned Sberbank in a transaction valued at USD 2.8 billion (a 20% discount to the previously agreed price due to the fall of Turkish lira). The revised price is said to value the bank at 0.9x times its book value. The deal is expected to close in Q2 2019. Sberbank originally acquired Denizbank in 2012 for about USD 3.5 billion. 

Source: Reuters, Bloomberg

UK Asset Resolution (UKAR), a “bad bank” run by the UK Treasury, has sold a GBP 4.9 billion portfolio of mortgages and unsecured loans (originally issued by Northern Rock) to Citi and Pimco. This transaction reduces its balance of loans from the original post-crisis level of GBP 116 billion to GBP 8 billion. 

Source: Financial Times

Deal Ideas In Process

UniCredit, an Italian lender, is said to be interested to make a bid for Commerzbank, if and when the merger discussions with Deutsche Bank fall apart. UniCredit might merge Commerzbank with HypoVereinsbank, a German lender it already owns.

Source: Financial Times 

Discussions about a potential merger between Abu Dhabi Islamic Bank and First Abu Dhabi Bank are said to be in very early stages. This transaction could create a lender with USD 236.7 billion in assets.

Source: Bloomberg

The BlackRock specialist fund remains the only potential bidder for Carige, an Italian lender under special administration, after Varde Partners, a Minnesota-based fund, decided to drop out after due diligence.

Source: Reuters, Bloomberg

UBS, a Swiss lender, is said to be evaluating options for its asset management unit, including a partial sale or merger.

Source: Reuters

When Deutsche Meets Commerzbank

Deutsche Bank is said to be considering raising up to EUR 10 billion in fresh equity; at the upper end of range it would equate to 40% of the combined market capitalisation. Additional equity might be needed to cover the restructuring costs and potential write-downs on Commerzbank’s assets (e.g., EUR 8.4 billion portfolio of Italian government bonds).

Source: Financial Times

Valued By Markets

Banco Santander aims to increase its return on tangible equity by 2 percentage points, from the current 11.7% to between 13% and15% over the next 3 years. The bank is planning cost cuts amounting to EUR 1.2 billion. These extra savings are expected to push its cost-to-income ratio to below 45% in 3 years time (from 47% at present). Santander intends to increase its core equity tier 1 ratio from 11% to 12% by the end of 2021.

Source: Financial Times

Ontario Teachers’ Pension Plan, a proponent of “direct” investment in deals or buyouts bypassing intermediaries, has recorded an annualised net return of 9.7% since its founding in 1990.

Source: Financial Times

Marcus, the Goldman Sachs’ consumer bank, has accumulated USD 45 billion in deposits in the US and UK and issued USD 5 billion in consumer loans.

Source: Financial Times

While Citigroup’s consumer business has increased its return on equity from 12.9% to 16.4% in 2018, more than half of that is said to be attributable to the US tax cuts taking effect. Without a significant revenue increase meeting its 19% ROE target could be very challenging. Citigroup’s shares are trading under its tangible book value, compared to 1.5x times or more for other big diversified banks

Source: Financial Times

Thanks, But No Deal

NordLB is said to hold on to Deutsche Hypo, its profitable lending division, after having considered ideas to sell it.

Source: Reuters

New Tricks

BBVA, a Spanish bank, working in consortium with 6 other banks has issued its first “D-Loan” to Olam, a Temasek majority-owned company. The USD 350 million revolving credit facility will have a declining interest rate as the borrower makes progress towards a set of 32 digital business milestones. Boston Consulting Group will provide an independent annual assessment of the progress made by Olam.  

Source: Financial Times

Up-And-Comers

Bank 131, the Kazan-based Russia’s first neobank, has become the first newcomer to receive a banking license in 4 years. Established by Dmitry Eremeev, a tech entrepreneur, the online-only bank aims to target gig economy workers and freelancers. Its banking license does not permit the bank to accept deposits from private individuals.

Source: Financial Times, cbr.ru

Carta, a maker of software to manage equity stakes in other startups, is raising USD 300 million at USD 1.8 billion valuation. The funding round is led by Andreessen Horowitz. Just 3 months ago Carta raised USD 80 million at a valuation of USD 800 million. 

Source: Bloomberg

Closer to Home

Swedbank’s core tier 1 ratio stands at 16.3%, which is considered high by European standards. Its shares, having lost 1/3 in value since February, are still traded at 1.4x times its tangible book value. 

Source: Financial Times

Exciting Numbers

Private equity firms account for some USD 3.4 trillion of assets under management globally, of which USD 1.2 trillion is “dry powder” they are eager to spend.

Source: Financial Times

According to an expert witness, up to USD 180 trillion of financial products are linked to Euribor.

Source: Financial Times

According to Bloomberg data, only 96 of the world’s banks trade above their net asset values; the Dubai-based Emirates Islamic Bank on a 7.5x multiple is the most expensive.

Source: Financial Times

A Thought Worth Noting

“When a bank is making a lot of money while seemingly taking little risk in a small branch far from head office, there are two possibilities. The first is that it has invented a legitimate service that competitors will soon start to copy. The second is that it is about to get into terrible trouble.”

John Gapper, Financial Times

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.