Germany’s retail banking market is
set for profound change following Deutsche Post’s announcement that
it wants to sell its 50 percent stake in the largest retail player,
Deutsche Postbank.  

Whatever the outcome, however, the
country’s retail banking market will remain dominated by its
co-operative and savings banks. Germany looks set to have a
retail banking ‘national champion’ as Deutsche Postbank,
Commerzbank and Allianz’s Dresdner discuss merging some or all of
their respective retail banking arms together.  

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Combining Deutsche Postbank with Allianz’s
Dresdner Bank and Commerzbank would create Germany’s largest
consumer bank. The deals, catalysed by Deutsche Post’s decision to
sell its 50 percent stake in Postbank, come at a time when Citi has
said it is also looking to sell its German operation, with Deutsche
Bank being touted as a possible bidder.

Germany – retail branch numbers The group would have at
least 2,750 branches – thousands more if post office branches were
included (see bar chart left) – and more than 20 million
clients, compared with Deutsche Bank’s 987 branches and 9.7 million
customers.

Deutsche Bank, long looking to increase
its underweight retail business, could also make a play for
Deutsche Postbank, currently the country’s largest retail bank
outside of the collective might of the Sparkassen savings
banks. French co-operative Credit Mutuel, Deutsche Bank and
Commerzbank continue to be linked with the German arm of Citi,
which has 340 branches and around 3.2 million clients. Analyst
estimations suggest it may sell for up to €5 billion ($7.74
billion).

Given the opportunities present in the
underserved German consumer finance and retail banking market, the
lack of foreign bids for both Deutsche Postbank and Citi’s German
arm is surprising – though potential bidders may have been put off
by the dominance of the country’s savings banks and co-operatives
in the retail banking market.

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Any mergers between the commercial banks
will bring much-needed consolidation to a fractured German banking
market, an industry of around 2,000 banks. Germany’s three-pillar
system, which consists of private sector banks, state-owned
regional banks (Landesbanken), and local savings banks
(Sparkassen) and co-operatives, has made it hard for
private sector banks to gain any scale or market share.

Little room for manoeuvre

Deutsche PostbankCo-operatives make up between 20 to 25 percent of the
retail banking market, and the Sparkassen, which are small
savings banks, have a 40 to 50 percent market share. This leaves
little room for manoeuvre for Germany’s big commercial players:
Deutsche Bank, Commerzbank and Allianz’s Dresdner Bank. And it
makes Deutsche Postbank’s market share of 9 percent seem all the
more valuable.

The Sparkassen’s hold on the
retail market is, if anything, getter stronger.

In March, the influential German Savings
Banks Association reported that for 2007, the Sparkassen
recorded net interest income of €20.9 billion, some €1.4 billion
down from 2006 due to tough interest-rate competition. Net
commissions increased by 3.6 percent to €6.2 billion, however, as
savings banks exploited their roots focusing on sales and financial
advice.

Moreover, Germany’s 446 savings banks
reported record growth in the sales of investment products, up from
€9.3 billion in 2005 to €23.4 billion in 2007. Customer deposits
increased by €20.8 billion to €717.4 billion, the highest growth
rate over the past five years; net sales of securities tripled to
€9.2 billion; and the total volume of consumer credits granted by
savings banks to private customers amounted to €62.7 billion.

“The success in the market… showed once
again that, due to their broad range of products, savings banks are
able to provide their customers with personalised solutions in all
matters of finance,” stated Heinrich Haasis, president of the
German Savings Banks Association, back in March. The savings banks
recently introduced a car financing service exclusively online: by
the end of 2008, the portal is expected to become one of the top
three car exchanges on the internet.


Non-traditional channels

Foreign banking groups which have managed
to profitably penetrate Germany have done so largely by
non-traditional, non-branch-based channels: Santander has built a
very successful consumer finance operation while ING remains the
most active non-German retail banking entity through ING
Direct.

In May, Dresdner announced it was rolling
out a wide-ranging direct banking service in its domestic market
with the aim of growing its online customer numbers by 50 percent
to three million within the next three years – and has the
six-million-strong German customer base of ING Direct firmly in its
sights (see RBI 592). Dresdner
says it can attract clients from the likes of ING Direct by
leveraging both Allianz and Dresdner’s physical networks to offer
face-to-face advice, combining the accessibility of the online
channel with Allianz’s 10,000 sales outlets and Dresdner’s 900
branches.

Record figures

Deutsche Postbank announced a set of
record figures for 2007, with profit topping the €1 billion mark
for the first time (up 6.7 percent). In its retail banking segment,
net income was €944 million, up 2.2 percent from the previous year.
It launched a branch revamp at the end of 2007, focused on better
branch design and footprint, better product choice and better
customer communication, all with a view to increase cross-sell
ratios (see RBI 582).

In the first three months of 2008,
Postbank’s profit before tax fell by 25.2 percent year-on-year to
€166 million as a result, said the bank, of the wider, global
turbulent market environment. But in the quarter, Postbank
increased the number of free checking accounts sold by 133,000 or
13.7 percent. The strategic focus on Postbank’s savings business,
which was announced in late 2007, also “started to bear fruit”,
said the bank: the volume of traditional savings deposits increased
by around €0.5 billion to total €44.4 billion.

Commerzbank’s retail division made a
profit of €401 million in 2007, after a loss of €122 million in
2006 because of a one-off expense from integrating Eurohypo, the
commercial and real estate bank it bought in 2005. The €4.5 billion
purchase of Eurohypo helped Commerzbank, which now has around 850
branches and 3.9 million retail customers, to successfully turn its
business around after tumbling to near-collapse in 2003 after being
hit by record-breaking investment losses of €2.3 billion.

Underscoring Germany’s close-knit banking
industry, Eurohypo itself was formed in 2002 by a merger of the
mortgage operations of Commerzbank, Dresdner and Deutsche Bank. In
a relatively short time, it turned itself into a profitable
business helped in part by teaming up with Citigroup and GMAC
Commercial Mortgage to process out bad loans.

Consumer attitudes to Germany’s
banks

In mid-June, Dresdner Bank published
commissioned research on German consumer attitudes to the country’s
banking market. Some of the conclusions, drawn from 1,014 people,
included: 80 percent expect banking services to be “comprehensive”
but low-cost or free-of-charge; 83 percent want financial advice;
70 percent convenient locations; and 67 percent want a familiar,
consistent contact person.

Asked about market consolidation, about 60
percent said they believed “strong, independent banks serve as
guarantors for economic growth” in Germany and for good, low-cost,
reliable products for clients. But 49 percent said they were also
skeptical about bank mergers, with concerns about branch closures
and layoffs top of the list.

RBI DEALWATCH
RBI DealWatch tracks global financial services mergers and
acquisitions, privatisations and demutualisations, flotations,
divestments, share stakes, strategic alliances and joint
ventures.

Country
Participants
Type/value
Description

EUROPE, MIDDLE EAST, AFRICA
Germany Deutsche Postbank,
Allianz, Deutsche
Bank, Commerzbank

Possible merger

Deutsche Post, the German postal
service, has said it wants to sell its 50 percent plus one share
stake in Deutsche Postbank, the country’s largest commercial retail
bank. Possible bidders include Commerzbank, Allianz’s Dresdner Bank
and Deutsche Bank (see above).
Germany Landesbanken

Industry-wide
privatisation

 The German government’s independent panel of economic advisers
has advocated privatising the country’s public sector
Landesbanken.”The Landesbanken are not only affected to a special
degree by the [US ] crisis, they also show low profitability and
pursue business models that often are not very sustainable,” the
advisory panel said. It argued that a “fundamental reform” of the
banks is necessary, and that all the Landesbanken should be
privatised so that less than 25 percent of their shares remain in
public hands. At present, the banks are owned by a combination of
municipal and state authorities and local savings banks. The
advisory panel said that public holdings should be sold “without
restrictions,” but added that local savings banks could be allowed
a priority purchase option.
Germany

Citibank Privatkunden,
Santander, Credit
Mutuel, Commerzbank

Possible sale

 Spain’s largest banking group, Santander, is no longer
interested in acquiring Citi’s German retail operations, according
to a report by Spanish newswire Europa Press.”We looked at it, but
we’re not going to buy it,” Santander chairman Emilio Botin was
quoted as saying. French co-operative Credit Mutuel, Deutsche Bank
and Commerzbank continue to be linked with the German arm of Citi
(see Beware the Sparkassen).
Germany

Erste, Bayern

 Denial of bid rumours

According to a report by the Austrian
news agency APA, Erste Bank is not interested in acquiring a stake
in BayernLB, the German state bank jointly owned by the state of
Bavaria and the regional savings banks. An Erste spokesman told the
agency the bank was, however, interested in co-operating with the
Bavarian savings banks.
Poland GE Money, Bank BPH

Acquisition

Poland’s Financial Supervision
Authority (KNF ) has approved GE Money’s acquisition of Bank BPH,
enabling GE to proceed with plans to merge its Polish GE Money Bank
with Bank BPH in the first half of 2009. The newly merged bank will
have a network of 310 branches, with plans to increase this to 530
units by 2010.
UK

Bradford & Bingley,
Texas Pacific Group

 Stake purchase

US private equity group Texas Pacific
Group (TPG) is to acquire a 23 percent stake in troubled UK bank
Bradford &Bingley for £179 million ($348 million) (see RBI
593).

Iceland

Kaupthing, Reykjavik
Savings Bank

 Possible merger

Kaupthing, Iceland’s largest banking
group, has confirmed it remains in talks with local rival Reykjavik
Savings Bank about a possible merger between the banks.

Italy

Intesa Sanpaolo

Possible sale of
business unit

 According to a report by Italian newspaper Il Sole 24 Ore,
Intesa Sanpaolo intends to sell its Neos consumer credit division
as part of a planned rationalisation of its consumer credit
operations. While not mentioning the Neos business unit by name,
Intesa Sanpaolo chief executive Corrado Passera said in early June:
“We have always maintained we need to rationalise our consumer
credit operations. It’s part of our plan.” The bank is also keen to
resolve a dispute over the ownership of Findomestic, the
joint-owned consumer credit venture between Intesa’s CR Firenze
unit and BNP Paribas. According to analysts, Neos could be valued
at around €200 million to €400 million ($310 million to $620
million) and 50 percent of Findomestic at about €1.1
billion.
UK

Royal Bank of
Scotland, Angel Trains

Sale of nonretail banking
business unit

Following its successful £12 billion
rights issue, the largest in UK corporate history, Royal Bank of
Scotland has further boosted its balance sheet with the sale of its
train leasing unit, Angel Trains, for £3.6 billion to an
infrastructure fund managed by Australia’s Babcock & Brown.
UK Barclays

Capital raising

Barclays, the UK ’s third-largest
bank, has confirmed it is considering a share issue to shore up its
balance sheet. It is likely to seek a placement with large
strategic investors, such as sovereign wealth funds, while allowing
existing shareholders to invest on the same terms. The bank is
believed to be looking to raise around £4 billion, from as yet
undisclosed investors. Potential partners include China Development
Bank, Singapore’s Temasek and Japan’s SMFG .
UK

Royal Bank of Scotland

Insurance selloff

RBS has put its UK insurance
operations, which operate under the Churchill and Direct Line
brands, up for sale as part of wider efforts to repair its weakened
balance sheet. The sale is believed to have attracted four bidders,
including Zurich and US giant Allstate. RBS is said to want a price
of £7 billion though some analysts have said a figure of £5.5
billion is more realistic in the current market environment.

Slovenia

Nova Ljubljanska Banka

Flotation

The Slovenian government has confirmed
it is to press ahead with a stock market listing of the country’s
largest bank Nova Ljubljanska Banka (NL B) on the Ljubljana Stock
Exchange. “The government will propose to NL B shareholders to
start, by the end of August, procedures for the listing on the
Ljubljana bourse,” the government’s communication office said in a
statement. The public sector currently holds 45.5 percent of NL B
stock while 34 percent of the shares are owned by Belgian
bancassurer KBC. In April, KBC announced plans to sell its stake in
NL B.

Turkey

ING , Oyak Emeklilik

Acquisition

 ING is buying 100 percent of the shares in the pension fund
Oyak Emeklilik for €110 million to gain a foothold in the growing
Turkish pension market, a deal which provides further impetus to
its recently acquired retail banking operations in the country
(see RBI 586). Oyak Emeklilik, which will be re-branded
under the ING brand within the first year after the closing of the
transaction, has over 150,000 customers and distributes its
products both through a network of independent agents and ING Bank
Turkey (formerly Oyak Bank).
Rwanda

Rabobank, Banque
Populaire du Rwanda

Acquisition

Dutch co-operative Rabobank’s Rabo
Development arm has agreed a deal to acquire 35 percent of Rwandan
retail Bank Banque Populaire du Rwanda (BPR). The agreement with
BPR, which has 130 branches located throughout Rwanda, will be Rabo
Development’s sixth partner bank following partnerships in Tanzania
(National Microfinance Bank), China (United Rural Co-operative Bank
of Hangzhou), Zambia (Zambia National Commercial Bank), Mozambique
(Banco Terra) and Paraguay (Banco Regional).

THE AMERICAS
US

MetLife Bank, First Tennessee Bank

Purchase of business unit

MetLife Bank, the retail banking unit
of the US ’ largest insurance group MetLife, has acquired the
residential mortgage business of First Horizon National subsidiary
First Tennessee Bank, in a deal that includes about $20 billion in
first-lien mortgage loans.
US

Bank of America, BNP

Paribas

Sale of business
unit

Bank of America has agreed to sell its
equity prime brokerage business to BNP Paribas. The transaction is
subject to regulatory approval with completion expected in the
second half of 2008.
US

Société Générale, Rockefeller
Financial

Services

Stake purchase

Société Générale (SocGen) has agreed a
deal to acquire 37 percent of US wealth management firm Rockefeller
Financial Services for an undisclosed price. As part of the deal,
SocGen and Rockefeller have formed a global alliance to work
together to share areas of expertise.
US

Keycorp

Capital raising

Ohio-based Keycorp has raised $1.65
billion in a successful capital raising exercise, following reports
it expects to post a second-quarter loss of around $1.1 billion.
Keycorp also announced it will slash its dividend by 50 percent,
following 43 years of consecutive dividend increases.
US

Bank Hapoalim, NuVerse Advisors

Acquisition

Israel’s Bank Hapoalim has agreed to
acquire 50.01 percent of NuVerse Advisors, a New York-based wealth
manager which offers personal wealth management services to high
net worth individuals through offices in the US , Latin America and
Europe.
US

PFF Bancorp, FBOP

Acquisition

Californian-based PFF Bancorp is to be
acquired by FBOP, the parent company of California National Bank in
a $31 million deal expected to close by September. California
National Bank has 68 branches in Southern California; after the
merger, it will have 106 offices.
ASIA-PACIFIC
China

China Construction
Bank, Bank of America

Stake purchase

Bank of America (BofA) has exercised
an option to increase its stake in China Construction Bank (CC B),
China’s second-largest bank. Once the deal is concluded, BofA will
hold 10.75 percent of CC B’s shares, up from the current level of
8.2 percent. The shares cannot be sold until 29 August 2011 without
the prior consent of CC B, although BofA could buy more. The
increased stake will cost $1.86 billion, a 64 percent discount to
the current market price of CC B’s shares.
China

China Merchants Bank,
Wing Lung Bank

Stake purchase

China Merchants Bank (CM B), the
country’s fifth-largest bank, has won the battle to acquire a 53
percent stake in Hong Kong’s Wing Lung Bank, in a CN Y17.2 billion
($2.48) billion deal which represents CM B’s first acquisition
outside the Chinese mainland (see RBI 593).
China

Everbright

Initial public offering

China’s Everbright Bank has confirmed
it has applied to China’s securities regulator for a long-planned
initial public offering. In a statement, the bank said the actual
listing time will depend on “regulatory process and market
conditions”. In April this year, Everbright said it would float
shares in August, offering more than 10 percent of its capital
base.
Australia

GE , Wizard

Possible sale of mortgage business
unit

GE is considering a possible sale,
joint venture or partnership for Wizard, the Australian-based
mortgage unit which it bought in 2004, according to a GE spokesman.
According to analysts, a sale may realise around A$500 million
($479 million), as GE continues to shrink its global consumer
finance interests.
Japan

Shinsei Bank, GE

Possible sale of consumer
finance unit

Shinsei Bank is reportedly set to
acquire Lake, GE ’s Japanese consumer finance unit, having beaten
off competition from consumer lenders Acom and Promise.
Asia-Pacific BBVA

Mergers plans

 Spain’s BBVA , which recently doubled its stake in China’s
CITIC Bank (see RBI 593), wants to increase its presence
in Asia with deals in India and elsewhere, chairman Francisco
Gonzalez has stated.
Source: RBI