For daily news stories
@ visit http://www.ifre.comRussian bailout of Otkritie and
Italy’s state-backed rescue of
"ANCAû-ONTEûDEIû0ASCHIûDIû3IENAû
dominating activity. Still, the deal
tally was US$10bn lower than it
was the year before, and a fraction
of annual volumes in the 2000s.
SOLID FOOTING
"UTûTHEREûAREûMANYûREASONSûTHATû
bank consolidation should be
happening. Many banks are now
on a much more solid footing,
meaning they can be more
comfortable about big
acquisitions and less nervous
ABOUTûlNDINGûBODIESûBURIEDûINû
the banks they are acquiring.
Funding costs are also very low.
At the same time, many are
STRUGGLINGûTOûINCREASEûPROlTABILITYû
Many operate in over-saturated
domestic markets, where options
for grabbing market share are
reduced. At the same time, much
of the easy cost-cutting has
already been done, leaving little
room to improve the bottom line.
“There are a lot of arguments
as to why consolidation should
happen – and there’s been a lot
of regulatory encouragement,”
said one top adviser to banks in
THEûREGIONûh"UTû)MûSCEPTICALû
The regulator wants the banks
TOûJUMPûlRST ûBUTûTHEûBANKSûWANTû
THEûREGULATORûTOûJUMPûlRSTv
He says that regulators are
increasingly looking to the
banking sector to drive the
lNANCIALûCONSOLIDATIONûOFûTHEû
eurozone that politicians have
failed to achieve. Only this
month, an EU-wide plan for
winding down failing banks was
postponed, while a bloc-wide
deposit guarantee scheme has
BEENûDELAYEDûINDElNITELY
“The regulators know that,
despite the euro, there is no
eurozone-wide monetary policy
framework right now,” he said.
h4HEYûFEARûTHATûTHEû%#"ûISûDOOMEDû
unless there is more cross-border
banking consolidation. They are
trying to get the banks to play the
role that politicians should be
lLLINGvMORE PRESSING CHALLENGES
"UTûBANKSûHAVEûANOTHER û
potentially more pressing,problem to grapple with. The
industry is arguably living
through some of the biggest
changes in its history, with
technology – and the rise of
start-ups – upending the entire
business of banking, from
deposit-taking to lending and
transaction management.For many boards, dealing
with that issue will take
precedence. Many are convinced
that big investments in
technology will lead to a much
bigger payoff longer term. “Why
would I want to buy a load of
branches that I no longer need?”
asked the CFO. Source: Thomson Reuters0501001502002500100200300400500600Value (lhs) Number of Deals (rhs)2000 2005 2010 2015BANK M&A IN EUROPE
ANNUAL DEAL TALLY, US$BNuninhabited island off the
southwest coast of Ireland.
Other big deals have included
Italy’s INTESA SANPAOLO in April
selling a portfolio with €10.8bn
GROSSûVALUEûTOû)NTRUMû"RITAINSû
UK ASSET RESOLUTIONûOFmOADINGû
õBNûOFûFORMERû"RADFORDûû
"INGLEYûASSETSûANDûLLOYDS BANKING
GROUP selling €5bn of Irish loans.
UNICREDIT sold another €537m
portfolio of Italian NPLs last
week.
ALL GREEK
)NûONEûOFûTHEûMOSTûSIGNIlCANTû
deals, PIRAEUS BANK sold a €1.45bn
BOOKûINû-AY ûTHEûlRSTû'REEKû
portfolio of NPLs secured by
commercial real estate.
The Piraeus portfolio - called
Project Amoeba, perhaps to
REmECTûANûORGANISMûTHATûCANû
change its shape - saw 12
investors make detailed non-
binding offers. Four submitted
binding bids and it was sold to
"AINû#APITALû"ANKERSûSAIDûTHATû
showed there is now more
appetite in countries where
investors have been wary up
until now.
On Friday, Pillarstone, a
platform set up by KKR to buy or
manage non-core bank assets in
Europe, said it had agreed a deal
with Greek retailer NOTOS COM
HOLDINGS and four Greek banks to
service €150m of NPLs.
“Most markets around Europe
are now liquid markets, where
YOUVEûGOTûSIGNIlCANTûINTERESTû
from buyers and a number of
willing vendors, and the two
have to come together,” said
Thompson.
“There’s been some decent price
discovery, so that enables banks to
be more certain what they are
likely to realise and enables buyers
to see what performance has been
over time so they are able to make
more accurate decisions around
pricing.”
"ANKERSûSAIDûCONDITIONSûAREû
positive for private equity buyers
as funding costs are low. With
NPL purchases a scale game, the
BIGû53ûPRIVATEûEQUITYûlRMSûAREû
expected to continue picking up
assets.
"ANKSûAREûOFTENûRETAININGû
exposure to some of the upside
potential. Santander’s massiveportfolio sale last year, for
instance, was structured so that
the bank kept 49% exposure to the
assets. Other deals, including
those for the Intesa and UniCredit
portfolios, involved complex
securitisations where the banks
will keep some exposure.
That allows banks to
deconsolidate all the loans from
their balance sheets, but keep
exposure to some of the upside
IFûRECOVERIESûIMPROVEû"ANKSû
have often marked down the
value of the loans already, so
there is often a capital lift.
Sabadell, for example, said
last week’s sale would improve
its common equity Tier 1 ratio
by 13bp despite adding €92m in
extra provisions, due to the
reduction in RWAs. It is also
keeping a 20% exposure to the
loans.REGULATOR PRESSURE
A number of factors are driving
this activity, after years when
sales in southern Europe were
hindered by complex and
DIFlCULTûPROCESSESûANDûDIFFERENTû
rules in each country. That hasmade it a long slog to reduce the
overhang. UK and Irish banks
sold loans much more quickly.
EU banks still held €813bn of
NPLs at the end of 2017,
although that has fallen by a
third over the past three
years from €1.12trn, according
TOûTHEû%UROPEANû"ANKINGû
Authority.
Levels remain high in many
countries. In Greece, NPLs
account for almost half of loans,
equating to about €100bn of
NPLs. In Italy, NPLs have dipped
to around 12% of loans, but
that’s still more than €150bn of
bad assets.
Efforts by European and
national authorities to quicken
the process have included
changing insolvency and
collateral enforcement rules,
and encouraging the
development of secondary
markets. If the carrot fails, the
stick may be used, and banks
may face higher capital
requirements for NPLs on their
books from 2021 onwards,
UNDERûTHEû%#"SûSUPERVISORYû
process.