Commerzbank for €9.8 billion ($13.8 billion) underscored the
disastrous nature of the original purchase of the banking
subsidiary in 2001 (see All change in
Germany). It acquired Dresdner for €21 billion, in what is
now regarded as one of the worst banking deals of the past decade,
believing the bancassurance model would pay dividends, reports
Douglas Blakey
“The sale of Dresdner to Commerzbank was a
belated admission by the insurer it did not know how to run a
bank,” a leading analyst told RBI on condition of
anonymity.
But was it the worst financial services
deal of the past decade? It must certainly rank in the top 10, if
not top five. RBI looks at a number of other financial
services deals that didn’t quite work out.
Go deeper with GlobalData
• Travelers/Citi
This 1998 tie-up, valued at more than $70
billion, was the largest merger in US history at the time, and was
designed to enable Citi to become a one-stop shop producing all its
own insurance and banking services. “A lot to pay for an umbrella,”
said one analyst. Citi retained Travelers iconic umbrella logo
until 2007 but long before then had performed one of the biggest
U-turns in banking history. In 2002, Citi spun off the property and
casualty division of Travelers and in 2005 sold the life and
annuity division of Travelers to MetLife for $11.5 billion.
• Wachovia/Golden
West
Arguably the second worst US deal of the
past decade was Wachovia’s $24.2 billion acquisition of Californian
mortgage lender Golden West. It could not have been worse-timed,
coinciding with the peak of the US domestic property market. Sadly
for Wachovia, Golden West’s business was built on adjustable-rate
mortgages. Even worse, a large percentage of its loans were Option
ARM’s, giving the customer the option to pay a minimum payment.
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By GlobalDataUltimate write-offs related to Golden West
may exceed $25 billion, based on around 10 percent writedowns of
the $122 billion of mortgage loans Wachovia acquired, plus about
$14.3 billion of goodwill.
• Royal Bank of Scotland &
Fortis/ABN AMRO
RBS and Fortis overpaid and, even worse,
paid in cash in a deal which could almost have brought down the
banks. Fortis’ market capitalisation fell to €20 billion in the
summer, around one-third of what it had been before the acquisition
and less than the sum it paid for part of ABN, requiring it to
launch an €8.3 billion capital-raising programme. For its part, RBS
suffered the humiliation of launching the largest rights issue in
UK corporate history, raising £12 billion in new capital having
said it had no need of fresh capital at the time of the ABN
transaction.
• ABN
AMRO/Antonveneta
While ABN chief executive Rijkman Groenink
may be credited with obtaining top-dollar for the sale of the bank
to RBS, Santander and Fortis last year, he was castigated by
analysts for the 2005 deal to acquire Italy’s Banca Antonveneta.
“He paid around €7 billion for what was a broken franchise. Truly
awful,” said one analyst.
• HSBC/Household
International
In terms of timing and price, HSBC’s deal
to snap up Household in 2003 for $15 billion represented a gamble
that the US consumer and housing markets would hold up. To date,
that bet has not paid off, with HSBC posting around $27 billion of
writedowns in the past year, mainly linked to US subprime
losses.
Among more recent transactions to have
turned sour, private equity giant Cerberus’ purchase of 51 percent
of GMAC for $14 billion in 2006 has declined substantially in value
(see News digest). GMAC’s troubled mortgage lending arm,
Residential Capital, has now posted seven consecutive quarters of
losses, totalling $7.2 billion.
Other deals noted by RBI when talking to
analysts included the $10.5 billion acquisition by RBS subsidiary
Citizens of US-based Charter One in 2004; UBS’ deal to snap up
private clients firm PaineWebber in 2000 for $10.8 billion; and the
$11.5 billion purchase of US brokerage house Donaldson, Lufkin
& Jenrette (DLJ) by Credit Suisse in 2000.
In the UK, Barclays acquisition of the
Woolwich Building Society for £5.6 billion failed to ignite the
group’s retail banking business. By 2005, Barclays’ market share of
UK mortgages had dropped to 4 percent from 6 percent in 2004,
having fallen from 10 percent at the time of the acquisition.
Looking to the future, there is likely to
be a fresh wave of M&A activity as well-capitalised banks snap
up stricken rivals. The past few years have been stage to the
widespread restructuring of banking markets in the US, the UK,
Italy, Germany, Japan, across Central & Eastern Europe, and
other smaller markets. Opportunities exist as never before, but
clearly so do the risks.
