The banking industry in Europe, and in particular the corporate and investment banking divisions of the large universal banks, stand poised to go through a profound restructuring and consolidation in the months ahead, which will lead to a boost in M&A numbers.
Dealogic data show that the broadly defined financial services industry declined to be the third most active sector in M&A for 2011 behind real estate, and oil and gas.
This is its lowest position since 1996, when it was also third, and although the finance sector recorded the highest number of M&A transactions greater than $1 billion in 2011, with 56 such deals worth $151.1 billion, total volume of $256.7 billion was down 8% on 2010.
In the months ahead, M&A bankers are not expecting a surge of big deals, although these could resume when the industry has re-ordered itself.
“Hostile M&A has disappeared,” says Stefano Marsaglia, chairman FIG IBD at Barclays Capital. “The large transformational deals, such as Commerzbank and Dresdner or UniCredit with Capitalia are on ice for now, but they won’t be on ice forever.”
There have been just glimmers of hope for FIG M&A bankers, as their customers adjust their business portfolios.
On January 12, RBS announced it was looking for possible buyers of its cash equity, corporate broking, equity capital markets and M&A advisory businesses. Many market participants suggest the bank will struggle to find any bank capable of or willing to pay a price for them, and this is a cursory look prior to closure.
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| "The large transformational are on ice for now but will not be on ice forever" Stefano Marsaglia, chairman FIG IBD at Barclays Capital |
However, RBS has enjoyed some success using the M&A market to exit businesses. Just days after announcing its planned withdrawal from equities and M&A, the majority state-owned UK bank sold RBS Aviation Capital – its aircraft leasing business, now the fourth largest in the world – to Sumitomo Mitsui Financial Group and Sumitomo Corporation for £4.7 billion ($7.3 billion). The sale boosts RBS’s tier 1 capital while also reducing wholesale funding requirements.
"Reaching agreement on a deal of this scale in such a volatile market is a significant success for our non-core division and a credit to SMBC [Sumitomo Mitsui Banking Corporation]," says Bruce Van Saun, RBS group finance director.
Is it a model for more such M&A activity? Many will hope so.
ING is now looking to sell its Asian insurance and investment management operations to a trade buyer, having abandoned plans to IPO them due to turbulent conditions in the equity market. Deutsche Bank is reported to be receiving enquiries from potential buyers of its asset management division, which, following a strategic review last year, it decided might fare better under new ownership. It will retain as core only the domestic DWS business.
“If you look just at asset sales, there are big buyers from Asia, even Japan and parts of the Middle East that have been bidding for asset portfolios,” says Marsaglia. “Can this translate to M&A? Well, many buyers will be cautious and some constrained, but if you do have spare capacity on the capital and funding side, this could be a very good time to think about acquisitions. It’s a buyer’s market. And for large banks, I’m a big believer in the benefits of diversification.”
For the full story, check out the February edition of Euromoney magazine.
