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BayernLB clinches $2.2 bln Hypo deal

Tue May 22, 2007 9:07am EDT

(Adds sale approved, detail, background)

By Eva Komarek

KLAGENFURT, Austria, May 22 (Reuters) - German state-owned bank BayernLB [BAYLB.UL] agreed to buy half of Austria's Hypo Group Alpe-Adria for 1.625 billion euros ($2.2 billion) on Tuesday, securing a long-sought deal to expand its business.

Hamstrung at home by agreements with savings banks and other state-owned lenders that largely limit it to wholesale banking in Bavaria, BayernLB is buying 50 percent and one share of Hypo, a fast-growing bank active in Austria, Italy and the Balkans.

"We are tapping a great potential in significant future markets and in the retail business," said BayernLB Chief Executive Werner Schmidt in a statement.

The deal, BayernLB's biggest acquisition ever, comes after it lost out in the 3.2 billion euro auction of Austria's BAWAG P.S.K. last year, and amid a fierce race with three other bidders for Germany's Landesbank Berlin BEBG.DE.

"Compared to the German banking market, there is a significant catch-up potential in south-eastern Europe in demand for both credit and investment products," BayernLB added.

Hypo has more than doubled its assets over the past three years, mainly in Italy, Croatia and Slovenia. Last year, assets grew 26 percent to 30.6 billion euros. The valuation corresponds to around 2.5 times Hypo's book value.

All of Hypo's current shareholders -- the Austrian province of Carinthia, insurer Grazer Wechselseitige, a group led by Hypo's designated Chief Executive Tilo Berlin and a foundation of Hypo employees -- will sell shares in the deal.

Carinthia, led by right-wing populist Joerg Haider, will raise about 836 million euros in the deal, which it needs to help repay a 500 million euro bond that comes due next year.

Berlin's group will buy a 16-percent stake from Grazer under undisclosed terms agreed when it bought a Hypo stake last year, and sell on this and most of its own stake to BayernLB.

Austrian Hypo rivals including the country's second-biggest lender, Erste Bank (ERST.VI), have said they would have been interested in Hypo too and would challenge the sale to BayernLB because Carinthia did not publicly tender its stake.

But Haider said he did not need to have a public tender for the Hypo stake, because it was sold at a higher price than what two auditors -- Deloitte [DLTE.UL] and KPMG [KPMG.UL] -- mandated by the government had found it was worth.

Hypo made headlines last year when auditors revealed it had hidden losses of about 300 million euros from swap deals that went awry in 2004. The bank had to restate its accounts and seek fresh capital to prop up its balance sheet.

(Additional reporting by Patricia Nann and Hans Nagl in Frankfurt, Christian Kraemer in Munich)

((Writing by Boris Groendahl; editing by Paul Bolding; Vienna Newsroom, phone +43 1 531 12-258))

($1=.7437 Euro) Keywords: HYPOALPEADRIA BAYERNLB/

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