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.
KBC, with assets of 67 billion euros in the region, is also probed by the EU for the state aid it got to plug holes ripped open by its exposure to U.S. monoline insurers, and may sell at least parts of its network.
The EU is walking a fine line between ensuring competition on the one hand and financial stability in the region on the other.
A firesale of assets under EU pressure in some of the worst-hit countries like Hungary could undermine efforts to stabilize the region. However, if a major new name were to buy into it, this could also be seen as a big vote of confidence.
A second group of possible sellers include those who may not be under regulatory pressure but need to clean up their balance sheets and refocus business and management attention on core units -- especially if they are only also-rans in the region.
“Everybody who is sub-critical mass is going to have another look at its strategy in this market,” said one investment banker who declined to be identified because he is advising clients in the region. “If there is no network, no strategy, this is just eating up management time and doesn’t go anywhere.”
This includes Royal Bank of Scotland's RBS.L tiny Romanian business, Citigroup's C.N Polish arm Bank Handlowy BAHA.WA, Allied Irish Bank's ALBK.I Bank Zachodni WBK BZWB.WA and Commerzbank's CBKG.DE BRE Bank BREP.WA.
The Polish banks mentioned have market capitalizations between $5 billion and $6.5 billion.
And finally there are locally owned lenders such as Romania's Banca Transilvania BATR.BX, market cap $400 million, where the pressure on owners to raise capital may accelerate a possible sale that analysts have penciled in for a long time.
GROWTH TO RETURN, PRICES LOW
Despite the region’s bad press at the moment -- a deep economic contraction and financial stability risks because of widespread lending in hard currencies -- it is poised to get back on to a growth track in the long run.
Low costs and a skilled workforce will help push a surge in exports when western Europe, its top market, recovers. The region’s allure for western banks also lies in the fact that millions still do not have a bank account or access to the most basic banking services.
Analysts have long noted the nearly complete absence of Deutsche Bank in the region -- apart from some Russian business -- and the biggest German lender is currently looking at some of the assets on the market, several investment bankers said.
Among the banks who are already there, those with strong balance sheets like Intesa Sanpaolo ISP.MI and Societe Generale or those who just raised fresh cash like National Bank of Greece NBGr.AT or Poland's state-controlled PKO BP PKOB.WA could use the opportunity for bolt-on acquisitions.
The big uncertainty that could make both sellers and buyers hesitate at the moment, however, is how bad the current crisis will be -- by how much and for how long bad debt will rise, and whether bank runs or country defaults can be avoided.
And in the process, the pricing ideas of prospective buyers and sellers will need to converge as well.
“It needs to be a good deal from a valuation perspective because the sentiment is still pretty negative on the region,” said Merill Lynch’s Marzea. “But maybe if there is one first mover it will be easier for the second or third mover.”
(Additional reporting by Marius Zaharia in Bucharest, Patricia Uhlig in Frankfurt, George Georgiopoulos in Athens, Steve Slater in London, Andras Gergely in Dublin, Anne Jolis in Brussels, Chris Borowski in Warsaw)
Editing by Sitaraman Shankar
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