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Attempts to merge European banks are becoming more common. Most recent deals, though, will require a major stakeholder to be dragged kicking and screaming — be it the target, a national government, or both — if they are to close. BPCE’s €6.4bn acquisition of Portuguese lender Novo Banco is that rare case: a bank tie-up that pleases almost everyone.
French lender BPCE says buying Novo Banco from its private equity owner Lone Star is part of the broader project of “European banking consolidation” necessary for boosting the continent’s economic growth. It is true that the continent could use the efficiencies, both for customers and shareholders, that come with having more big banks. But for that to happen, many interests must coalesce.
In this case, they have. BPCE, which owns Natixis and a pair of French retail banking businesses, is getting extra scale and geographic diversification at a relatively low price. The price of 1.3 times Novo Banco’s net assets looks high, but then the lender, formed from the remnants of failed Banco Espírito Santo in 2014, is unusually profitable by Eurozone standards. Valued as a multiple of earnings, the price is in line with the sector, even factoring in the premium.
For Lone Star, meanwhile, the deal crystallises an extremely profitable investment in one swoop. It could probably have ultimately earned more through an initial public offering, but the stake was already eight years old, a long time for private equity investors. And Lone Star looks to be making almost six times its initial €1bn investment from the sale of its 75 per cent stake plus previous dividends.
Portugal’s government, which was a minority shareholder, may have preferred a listing too, in an ideal world, but the more likely alternative to BPCE’s bid would have been a takeover by Spain’s CaixaBank. Since Portugal already relies heavily on Spanish banks, a source of some political consternation, a French owner looks like the lesser of two evils.
It will be tricky to get the stars to align in the same way for further cross-border bank deals, however strong their logic. European governments, encouraged by high-profile figures like former central bank chief Mario Draghi, support European banking champions in theory, but nationalistic interests often get in the way in practice.
Some of Europe’s biggest potential combinations remain, to varying degrees, stuck. Look at the resistance to UniCredit’s stakebuilding in Commerzbank, or the drama created even by domestic deals like BBVA’s attempt to buy Sabadell. Those deals still face political obstacles. But if bets like BPCE’s pay off, opposition will look increasingly counter-productive.
