Banks put assets on block, but face price shock

By Steve Slater

LONDON (Reuters) - Royal Bank of Scotland (RBS) (RBS.L) and other European banks are having to sell assets to repair their battered balance sheets and will have to settle for low prices.

Buyers are scarce because funding is tight for private equity firms and because the better capitalized banks that might be interested can afford to hold off on acquisitions until the price is right.

"RBS Insurance is a classic example where a bank has in mind what it thinks is a fair price but the reality is people's ability to pay is pretty constrained," said Simon Maughan, analyst at MF Global.

"If we do see asset sales it could take a few more months for the sellers to capitulate (and lower price expectations)," he said.

RBS may struggle to achieve the 6 to 7 billion pounds ($12-14 billion) it wants for its insurance arm and it is not alone in looking to sell assets in tough markets, bankers say.

Still, cut-price deals may be better than dilutive share issuance.

Multi-billion-euro rights issues are repairing the most stretched balance sheets, but with more writedowns on toxic holdings and low growth ahead, asset sales could be the key.

"Banks will want to minimize capital calls, so they will naturally think a lot harder about selling assets," said Larry Slaughter, co-head of European M&A at JP Morgan. "So we may see more coming up for sale."

France's Credit Agricole (CAGR.PA), Citi (C.N) in Europe and Italian and other UK banks are all expected to make disposals.

"There are many, many assets available for sale given the need to reinforce balance sheets, but counter-cyclical deals are rare," said one analyst, who asked not to be named.

Bargains may be available after a steep fall in sector valuations and pressure to offload assets, but prices could drop further and buyers can be choosy. And some of the best capitalized, like HSBC (HSBA.L) and Santander (SAN.MC), are targeting investment in emerging markets.

"Banks with a capital advantage will want to be careful not to squander it too early in the cycle in case things get worse," the analyst said.

NEW ASSETS ON THE BLOCK

The list of potential assets for sale is long, and includes stakes in other firms, capital-intensive insurance operations and even books of loans to narrow focus or improve liquidity.

"We've barely scratched the surface of the deleveraging that is necessary in all the banks," said Neil Dwayne, chief investment officer Europe for RCM, an investment house owned by Allianz with about 70 billion euros under management.