Crédit Agricole’s purchase of an extra 15 percent in
Spain’s Bankinter has sent market talk of further consolidation in
the profitable Spanish mid-cap banking industry to an all-time high
– especially as this segment could suffer from an expected downturn
in the Spanish property market. Rodrigo Amaral
reports.
Expectations of further merger and acquisition activity in the
Spanish banking market are high following the acquisition of a
14.99 percent stake in Bankinter by Crédit Agricole. When the
acquisition is approved by the Spanish financial authorities, the
French bank will have a 19.53 percent share of Bankinter, one of a
number of profitable and competitive Spanish mid-cap banks.
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The share prices of many rival mid-cap banks, including Banco
Sabadell, have risen after the French group paid €809 million for
the shares of Spain-based Indian investor Ram Bhavnani. “Bankinter
is an excellent bank,” said Georges Pauget, chief executive of
Crédit Agricole.
As of 30 September, Bankinter had 347 retail branches, 46 private
banking and personal finance branches, 152 SME branches and 51
corporate centres. The bank reported 2006 net banking income of
€820 million ($1.21 trillion). With €36 billion of customer loans
and €22 billion of customer deposits, it ranked sixth in the
Spanish banking market.
Some analysts have suggested that, for all their strengths, none of
Spain’s mid-cap banks offers the best solution for international
banking groups looking to increase their presence in Spain without
paying exorbitant prices.
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By GlobalData
“For a long time, the market believed that mid-cap banks in a given
European country could be a good target for big banks from
elsewhere in Europe or the US,” said Santos Abascal, an analyst at
Madrid-based brokerage Capital Markets.
“But the reality is that a Spanish bank of reduced dimensions would
not add much to a larger, international group. And their prices
remain high. At the same time, the valuation of big European banks
is quite low at the moment, so it doesn’t make sense for them to
buy a small bank with a higher price earning ratio than
theirs.”
But the price of mid-cap banks in Spain has been boosted in the
past few years by persistent merger and acquisition rumours, but
also as a result of their good performance.
According to a study by Madrid-based consultancy Tatum, seven
mid-cap banks – Banco Sabadell, Bankinter, Banca March, Banco
Pastor, Banco de Valencia, Banco Guipuzcoano and the Spanish
subsidiary of Barclays – posted better profit growth rates in 2006
than the Spanish banking sector average: 30.63 percent against
27.66 percent.
Palma de Mallorca-based Banca March had a particularly strong year,
with net profits 93 percent up to €310.45 million.
The numbers are better when it comes to the volume of deposits. The
seven banks registered a 22.8 percent increase last year, against a
market average of 8.8 percent. And the good work seems to have been
maintained in 2007: profits in the period posted by seven medium
banks – the same of Tatum’s study, minus Barclays but plus
Santander-owned Banesto – were 21 percent up, compared with the
first three quarters of 2006.
Tatum argues that all mid-cap banks have been pursuing aggressive
growth strategies, but in a sustainable way. On average, they
increased their number of branches by 6.6 percent last year, while
the number of employees was up 6.2 percent. Banco Sabadell leads
the pack in both counts, with 1,187 branches and 10,066 employees
by the end of 2006.
For all the doubts about what a mid-cap Spanish bank can bring to
an international group, expectations that Crédit Agricole’s
offensive on Bankinter would not stop at Bhavnani’s former stake
were raised by the news that the French bank had requested
authorisation to buy 30 percent of Bankinter’s capital.
Crédit Agricole promptly denied that it would try to take over
Bankinter – and such an operation would be met with little
enthusiasm by Spain’s government, which has already indicated that
it would prefer domestic consolidation instead of foreign
acquisitions.
Jaime Botín, brother of Santander chairman Emilio Botín, responded
quickly to Crédit Agricole’s move, seeking to defend Bankinter from
a potential foreign takeover. Botín, whose family has a long
history in Spanish banking, wrote a letter to Bank of Spain,
Spain’s central bank, asking it to allow him to increase a 16.2
percent stake in the company to “up to 29.99 percent” – just below
the level that would trigger a full takeover bid. Botín is a former
Bankinter president and holds the shares through his investment
vehicle, Cartival, which has a place on the bank’s board.
The rumour mill
Nonetheless, the rumour mill has started to move
again, with the markets looking particularly at Barcelona-based
Banco Sabadell. The Catalan bank has shown it is not afraid to grow
by acquisitions after buying private banking outfit Banco Urquijo
from Belgium’s KBC last year.
Many investors – including Bhavnani, who is reputed to know a good
deal when he sees one – consider Sabadell a perfect match for
Bankinter, which is roughly half its size. But Josep Oliu,
Sabadell’s chairman, told the Spanish media that the moment for
such a deal has passed, more so given the intervention of Crédit
Agricole.
“It could be an interesting project [to merge with Bankinter]”,
Oliu said. “[But] Bankinter has been discarded for the moment. We
will have to wait some months or years, if this possibility is ever
to emerge again, that is.”
Sabadell released a new strategy plan in November, indicating that,
considering current market circumstances, its priority for 2009 is
to pursue organic growth. It marks a change from the previous six
years, the bank said, when a mix of organic growth and acquisitions
was in place.
The bank has also announced it is planning to increase its presence
in Portugal, where it works in a loose partnership with Millennium
BCP, the country’s second largest bank.
One threat to Spain’s mid-cap banks could be the country’s souring
property market. In the past, valuations have suffered because
mid-cap banks tend to be more reliant on mortgage loans. Caixa
Catalunya, a Barcelona-based saving bank, estimates that the stock
of new properties that have not found a buyer has reached something
between 350,000 and 500,000 already.
In a recent report on the Spanish market, ratings agency Standard
& Poor’s said a gradual, orderly correction of the housing
market would lead to lower economic growth but the environment will
still be supportive for banking. But it warned that while the
system has “strong cushions” to deal with a downturn, such as good
general loan loss reserves and a vigilant stance from the central
bank, the banking sector in Spain is still heavily exposed to a
housing market “deceleration”.
Indeed, Standard & Poor’s says that, with the exception of
Bankinter, all rated issuers are significantly exposed to real
estate development. In its view, the highest proportional
quantitative exposures are Banco Sabadell, Banco Pastor, Bancaja,
Caja de Ahorros del Mediterraneo and iberCaja.
