Much needed consolidation in
Russia’s fragmented banking sector could be catalysed by the
recently announced merger of MDM and URSA to form the country’s
second-largest private sector banking group after Alfa Bank. The
new group will have 450 branches and assets of $18.7 billion.
Douglas Blakey reports.

MDM Bank/URSA Bank-earnings fundamentals, H108Moscow-headquartered MDM Bank
and Siberia-based URSA Bank, Russia’s 13th- and 15th-largest banks
respectively by assets, are to merge to form the country’s
second-largest private sector bank after Alfa Bank, in the first of
a number of expected deals within the fragmented Russian banking

Announcement of the deal coincided with a comment by the
president of the country’s regional bank association, Anatoly
Aksakov, who said that around 300 of the country’s 1,079 banks will
need to merge or close.

Aksakov’s comments, in a 5 December interview, contrast with
even gloomier forecasts from a number of Russia-based analysts, who
have suggested the number of Russian banks will halve in the next
three to four years.

Liquidity concerns, combined with a fall in the value of the
Russian rouble – down almost 20 percent against the dollar during
the fourth quarter – a double-digit inflation rate and an alarming
drop in the country’s foreign currency reserves, have prompted
fears of the largest banking crisis in Russia since 1998 when 495
banks failed or lost their independence.

The Russian central bank is also known to be encouraging
consolidation within the sector. In October, the bank’s first
deputy chairman, Alexei Ulyukayev, said mergers in the banking
industry are “rational and effective,” and the central bank is
“ready to help”.

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The current crisis has prompted the Russian government to extend
$36 billion by way of five-year loans to the country’s leading
banks in an attempt to boost the banking sector and ease liquidity
concerns. The second half collapse in the oil price has also
hammered the economy, with ratings agency Standard & Poor’s
(S&P) warning Russia may need to spend a large part of its $200
billion-plus sovereign wealth reserves recapitalising weak banks if
oil prices remain depressed. In a separate announcement, S&P
has downgraded Russia’s foreign currency rating to BBB, leaving it
just two notches inside investment grade.

Looking ahead, economic conditions are expected to deteriorate
sharply; on 5 December MDM’s chairman said Russia’s GDP will grow
by 1 percent to 2 percent in the best-case scenario and could
decline by 1 percent to 4 percent in the worst-case scenario during

The MDM/URSA merger will form the ninth-largest bank by assets
and by retail deposits in Russia, and the third-largest by branch
network after public sector giants Sberbank and VTB, based on
statutory returns at the end of the third quarter. The deal is
expected to close in late 2009 or early 2010 and remains subject to
obtaining regulatory approval.

A good mix

While the 201-branch-strong MDM has traditionally concentrated
on the corporate sector it has recently expanded its retail and SME
banking operations. URSA is a leading regional retail bank with a
250-strong-branch network serving 120 cities in the Urals, Siberia,
and the far east of the country. The united bank will have assets
of RUB523 billion ($18.7 billion) and capital of RUB72 billion.

Analysts’ reaction to the deal was broadly positive, arguing
that MDM Bank and URSA Bank are complementary both in business
focus and in their geographic reach.

Igor Kim, chairman of URSA Bank, will become the CEO of MDM and
will be responsible for executing the integration plan. Commenting
on the deal, Kim said: “This merger is a step into the future. We
are fully convinced of its success and are prepared to start work
on this unprecedented integration project, which has no equal in
its size and importance”.

Kim added the banks have the resources necessary (MDM and URSA
have excess liquidity of almost $1.5 billion and around $1.3
billion, respectively) to “create a substantial reserve for further
development together”.

The new bank, whose name has yet to be announced, will also seek
to raise around $500 million to $1.5 billion of new capital. An
immediate challenge for MDM/URSA will be to tackle deteriorating
asset quality – in particular at URSA, where loans overdue by 90
days reached 4.9 percent in the third quarter.

Moscow-based Alfa Bank remains Russia’s largest private sector
bank, with assets of RUB621 billion at the end of the third
quarter. On 30 November, Alfa announced it had also jumped on the
merger bandwagon, acquiring a controlling stake in distressed
Urals-based outfit Severnaya Kazna.

State-controlled Sberbank still dominates the Russian retail
banking market overall: it has over 20,000 branches (see
Sberbank looks to go global

RBI DealWatch tracks global financial services mergers and
acquisitions, privatisations and demutualisations, flotations,
divestments, share stakes, strategic alliances and joint
Country Participants Type/value Description Date announced
Poland PKO BP, AIG Possible acquisition Poland’s second-largest bank, state-controlled PKO BP, is in
talks to buy the Polish unit of American International Group. PKO
said the negotiations cover two companies – AIG Bank Polska and AIG
Credit – and it would finance the deal from its own resources but
did not say when a deal might get done. PKO made a net profit of
PNL2.7 billion ($887 million) in the first nine months of this
Benelux Fortis, BNP Paribas Sale price re-negotiation

Failed bancassurer Fortis has demanded an
increased price from BNP Paribas over the sale of its Belgian
insurance unit. The Belgian-Dutch group has said it is entitled to
more than the initially agreed €5.5 billion ($7.05 billion) price
because a €16 billion loan to Fortis Belgium has appreciated in
value due to a loan guarantee from the Dutch government.

Iceland Keflavik Savings Bank, BYR Savings Bank and SPRON Merger discussions Three Icelandic savings banks have confirmed they have entered
merger discussions. Keflavik Savings Bank, Byr Savings Bank and
Reykjavik Savings Bank (SPRON) have all signed a letter of intent
to prepare for the merger, with the hopes that the amalgamation
will take effect from 1 January 2009.
UK Islamic Bank of Britain Capital raising Sharia compliant Islamic Bank of Britain has announced plans to
raise approximately £7.49 million ($11.01 million) by way of a
share issue. The shares are to be purchased by a group consisting
of Sheikh Thani, Qatar International Islamic Bank, and Qatar
Islamic Insurance Company. Following the share placement the group
will own 44.98 percent of the newly enlarged share capital of the
Italy UBI Banca, Banco Popolare Merger denial UBI Banca has denied rumours it is to merge with fellow
cooperative bank Banco Popolare. The recent resignation of UBI’s
chief executive had renewed speculation, started earlier in the
year, of a merger between the two Italian banks. To counter these
claims, UBI stressed in a statement: “UBI Banca once again confirms
that the hypothesis of an aggregation with Banco Popolare is
without foundation”.
Russia MDM Bank, URSA Bank Merger Two of Russia’s largest banks, MDM Bank and URSA Bank, are to
merge (see above). MDM and URSA, the 13th- and
15th-largest Russian banks, respectively, will together have
combined assets of RUB523 billion ($18.7 billion), forming the
second-largest bank private sector bank behind AlfaBank. The merger
is in line with the Russian government’s target to reduce the
number of banks in the country.
UK London Scottish Bank Bank failure Small UK subprime lender London Scottish Bank (LSB) has
collapsed into administration, after a failed 11-month attempt to
raise its capital ratio. UK financial regulator the Financial
Services Authority said LSB no longer met the “threshold conditions
for authorisation” as a bank. LSB, which is more than a century old
and has £250 million in deposits and 10,000 depositors, will
continue to operate and its 700 employees are still at work,
including those in its Robinson Way debt-collection arm.
Poland PKO BP Strategy Poland’s largest public sector bank, PKO BP, will not being
paying a dividend on its 2008 earnings. The government is
considering a capital increase at PKO BP, the country’s
second-largest lender by assets, but only to finance potential
takeovers (see above).
Ireland All banks Industry support Irish banks are to receive capital injections of up to €10
billion from a number of sources including the Irish Government,
private equity investors, pension funds and individual investors.
Industry consolidation between the major Irish players, or
acquisitions by foreign groups, remains a probable outcome in the
wake of the global credit crisis and the significant impact it has
had on the Irish economy (see RBI 603).
Austria, Hungary Sberbank, OTP, Raiffeisen Acquisition denial Russia’s largest banking group, Sberbank, has denied it is
looking at the prospect of acquiring Hungary’s OTP and/or Austria’s
Raiffeisen to expand its operations in Eastern Europe. The bank
said it would be imprudent to engage in major foreign acquisitions
of this type.
Russia Alfa Bank, Severnaya Kazna


Russia’s Alfa Bank has bought a controlling
stake in Severnaya Kazna, a troubled regional rival. Financial
details of the deal were not disclosed.


Hungary OTP Strategy Hungary’s largest bank, OTP, has ruled out an international
acquisition until the global economic crisis is over, according to
its chief financial officer Laszlo Urban. “We have been looking at
possible acquisitions but [until] the crisis is over… it’s
unlikely we would purchase a new subsidiary,” he said.


Netherlands Deutsche Bank, ABN AMRO, Fortis Strategy Deutsche Bank still plans to acquire assets of ABN AMRO from
failed Benelux bancassurer Fortis following the Dutch government’s
purchase of Fortis assets in the Netherlands, according to Dutch
business title Het Financieele Dagblad. Deutsche Bank had agreed to
buy the assets after regulators demanded concessions from Fortis
following its purchase of ABN AMRO.


Morocco, pan-Africa Crédit Agricole, Attijariwafa Bank Increased stake Crédit Agricole is to increase its stake in Moroccan bank
Crédit du Maroc and consumer finance specialist Wafasalaf, while
Morocco’s Attijariwafa Bank will take a stake in Crédit Agricole’s
African retail banking network. The french banking giant is to pay
€215 million for a 77 percent stake in Crédit du Maroc and (via its
subsidiary Sofinco) a 49 percent stake in Wafasalaf. Attijariwa
Bank will pay €250 million for an 81 percent stake in Crédit du
Congo, 51 percent stake in Société Ivoirienne de Banque, 65 percent
stake in Société Camerounaise de Banque, a 59 percent stake in
Union Gabonaise de Banque and a 95 percent stake Crédit du
Germany LBBW, BayernLB Merger talks State-owned Landesbank Baden-Wuerttemberg (LBBW) is looking to
initiate merger talks with fellow German bank BayernLB. The savings
banks of the German states of Baden-Wuerttemberg and Bavaria as
well as the states themselves each hold large stakes in the banks.
LBBW is also looking to raise its capital by €5 billion in the
first quarter of next year.
US Bank of America, Merrill Lynch Agreed sale Bank of America shareholders have approved the all-share
acquisition of Merrill Lynch by authorising the shares of common
stock to be issued in the merger. The deal price, initially
announced as $50 billion, has fallen to $19 billion off the back of
BofA’s collapsing stock (see A bad year).
US CapitalSouth Bancorp Possible sale CapitalSouth Bancorp says it has hired investment bank Sterne,
Agee & Leach to explore a possible sale. CapitalSouth, in a
statement, said no decisions had been made, but it was looking into
selling assets or a potential merger. It also said an offering of
up to 7.5 million shares of common stock at a price of $2 per share
had drawn subscriptions for 1.87 million shares. Substantially all
of these shares were subscribed by its directors and senior
management, it said. At the end of October, CapitalSouth Bancorp,
the bank holding company for CapitalSouth Bank, announced a net
loss of $5.29 million for the third quarter. Total assets at the
end of September were $696 million.
US US Bank, Downey Savings & Loan Association, PFF Bank &
Acquisitions Bank will receive approximately $12.8 billion of assets and
assume $11.3 billion of liabilities, including $9.7 billion of
deposits while PFF’s 38 branches add around $3.7 billion of assets
and $3.5 billion of liabilities, including $2.4 billion of
deposits. “The strategic acquisition of Downey and PFF will
strengthen our geographic footprint in the Western region of our
franchise with the addition of approximately 500,000 new loan and
deposit customers,” said Richard Davis, chairman, president and CEO
of US Bank.
US Prudential, Wells Fargo, Wachovia Securities Stake sale Prudential Financial, the second-largest US life insurer, is to
sell its minority stake in Wachovia Securities brokerage to Wells
Fargo to bolster its finances. The brokerage stake is worth $5
billion, or more than $3.7 billion after tax, and a sale could
result in a $1.7 billion after-tax gain. The $5 billion amount
represents Prudential’s stake in the brokerage as of 1 January
2008, and excludes the former AG Edwards, which Wachovia acquired
in 2007 for $6.4 billion.
US Capital One, Chevy Chase Bank Acquisitions Capital One Financial has agreed to buy Chevy Chase Bank for
$520 million in cash and stock, creating the biggest retail bank in
the Washington DC region and a top 10 player in the US (see
Capital One wins chase for Chevy
Brazil Unibanco, AIG

Stake sale

In a two way deal Brazil’s third largest private sector bank,
Unibanco, is to pay $820 million for ailing insurer AIG’s stake in
Unibanco AIG, which specialised in life, pensions and health
insurance, while AIG will buy out Unibanco’s shares in one of its
Brazilian insurance entities, AIG Brasil, for $15
Vietnam Vietinbank IPO Vietnam’s fourth largest lender by assets, Vietinbank, is to
sell 4 percent of its total capital in an initial public offering
on 25 December this year. The bank will sell 53.6 million of its
1.34 billion shares on the Ho Chi Minh Stock Exchange to both
foreign and domestic investors, and if fully subscribed could raise
over VND1 trillion ($59 million).


India Punjab National Bank Strategy India’s Punjab National Bank is looking to expand its
operations in India and abroad with an acquisition, though no
details or targets have been given. KC Chakrabarty, managing
director, told local media: “If you have strength, this is the time
to conquer the world.”


Vietnam Eximbank IPO cancellation Eximbank, the Vietnamese bank part owned by Sumitomo Mitsui
Financial Group, has cancelled its plans to list shares next year
due to the current financial crisis. The bank has said it will
still go ahead with a decision to sell 297 million shares worth
VND2.97 trillion to existing shareholders in December.
Pan-Asia HSBC, AIG Market rumours Analysts have suggested HSBC could pay $8.7 billion for AIG’s
Asian operations. Investment bank Keefe, Bruyette & Woods (KBW)
said a deal makes strategic sense for HSBC given that it wants to
push further into both insurance and Asia. “Depending on how a
potential deal would be financed, we would see it as 3-7 percent
earnings enhancing in year one. We also note that an acquisition
would significantly enhance HSBC’s life distribution across the
region. We estimate that these businesses would add around $1.1
billion to group attributable, and assume a price of $8.7 billion
would be paid.”
Japan Citi, NikkoCiti Trust and Banking Corporation Sale of Japanese unit Citi is set to sell its Japanese trust bank arm NikkoCiti Trust
and Banking Corporation, in a deal which could raise up to ¥40
billion ($432 million), according to local media reports. But in a
statement, the beleaguered US banking giant said it had no plans to
sell broker Nikko Cordial Securities, investment bank Nikko
Citigroup or other “core businesses in Japan”. Citi has all but
withdrawn from the consumer finance sector in Japan, having closed
more than 30 branches and 540 unmanned outlets in the country but
remains under pressure to raise capital, despite two capital
injections from the US government totaling $45 billion. Mitsubishi
UFJ (MUFG), Sumitomo Trust & Banking and Mizuho have all been
linked with the trust bank, with reports suggesting MUFG is in the
lead for the unit.


Thailand CIMB Group, Bank Thai Increased stake Malaysia’s second-largest banking group, CIMB, has had a tender
offer for a 36.74 percent stake of BankThai accepted by investment
firm TPG Capital. Following completion of the deal, CIMB Group’s
stake in BankThai will rise to 78.87 percent. BankThai Public
Company Limited was established in 1998; as of the end of
September, it had 147 branches and deposits of THB147.6 billion
($4.15 billion).



Bank of America, China Construction Bank

Increased stake Bank of America is to purchase the remainder of its share
options in China Construction Bank (CCB), China’s second-largest
retail bank. The US bank initially acquired the options from China
SAFE Investments in June 2005, and after the purchase will hold
approximately 44.7 billion H-shares of CCB, representing about 19.1
percent of its issued shares (see RBI 603).


Source: RBI