Crisis could bring new players to E.Europe banking

By Boris Groendahl - Analysis

VIENNA (Reuters) - Emerging Europe's banking sector is set to offer opportunities for banks like Deutsche Bank (DBKGn.DE), Santander (SAN.MC) and HSBC HSBC.L to snap up assets from western rivals or homegrown lenders facing bad debt.

Consolidation ground to a halt by 2007 when a decade-long acquisition and privatization rush dried up at high prices that reflected bumper credit and profit growth rates in the region.

But a window of opportunity will open for buyers as western banks active in the region clean their balance sheets or turn their focus back to domestic markets under regulatory pressure.

"There is a number of banks on sale at least informally," says Debora Revoltella, head of strategic analysis at Italy's UniCredit (CRDI.MI), emerging Europe's biggest bank by assets.

"And there is a number of banks which didn't enter the region before because they missed the boat to build a franchise. Those could include Deutsche Bank or Spanish banks," she said.

Some of the big names who lost out on emerging Europe had balked at prices which topped out at six times book value for some deals in 2006 and 2007, but they may find better value now as the region's banks are hit by a surge in bad debt.

"The banking landscape will be different in in three years' time," said Cristina Marzea, an analyst of emerging European banks at Merrill Lynch.

Hardly any bank active in the region is now trading at more than twice book value, with some still lingering at less than book value according to Reuters data.

"Whoever has cash now will get quite some opportunities, I'm not saying lifetime opportunities, but there are interesting assets at interesting prices," Marzea said.

Western banks own the biggest lenders everywhere in the former Communist part of Europe apart from the former Soviet Union and Hungary, which has produced the only homegrown lender active across the region, OTP OTPB.BU.

UniCredit and Austria's Raiffeisen International (RIBH.VI) and Erste Group Bank (ERST.VI) top the list of the biggest banks in the region by some distance. France's Societe Generale (SOGN.PA) and Belgium's KBC (KBC.BR) are next in line.

EU, MARKET PUSHES FOR SALE

Investment bankers and analysts looking at the region say that the banks which have sounded out possible buyers fall into three main categories.

The biggest chunks could come up for sale because the European Union may demand western banks scale back business as a condition to approve state aid they received.

This could happen to Germany's BayernLB BAYLB.UL, which owns Hungary's fourth-largest bank MKB and, through its Austrian unit Hypo Group Alpe Adria, some of the biggest lenders in the former Yugoslavia. Together, BayernLB's emerging European banks have assets of 29 billion euros.