Tag: strategy

European bank M&A: domestic consolidation

European banks have been busy buying and selling foreign subsidiaries to increase their market share or to reduce complexity.

But the largest mergers and acquisitions have been between banks in the same country.

Belgium

Crelan buys AXA Bank for 691 million (2021)

Delen Private Bank buys Dierickx Leys Private Bank (2024)

France

BPCE buys Société Générale Equipment Finance from Société Générale for €1.1 billion (2024)

BNP Paribas (Cardif) buys Neuflize Vie (an insurance joint venture owned by ABN AMRO (60%) and AXA (40%)) (2024)

BNP Paribas buys AXA Investment Managers for €5.4 billion (2024)

Hungary

MKB Bank, Budapest Bank and Takarékbank merge into MBH Bank (2023)

Italy

Intesa Sanpaolo buys UBI Banca for €4.1 billion (2020)

BPER Banca buys Carige for a symbolic €1 (2022)

Spain

Caixabank buys Bankia for €4.3 billion (2021)

BBVA wants to buy Sabadell for €12.2 billion (2024)

Switzerland

UBS buys Credit Suisse for 3 billion Swiss francs (2023)

Julius Bär might buy EFG (2024) Update: deal was stopped over regulatory concerns

United Kingdom

Nationwide buys Virgin Money for £2.9 billion (2024)

Barclays buys Tesco‘s retail bank for £600 million (2024)

NatWest buys Sainsbury’s Bank assets and liabilities (2024)

HSBC sells HSBC Canada. What should it do with the cash (Finrestra podcast transcript)

This episode is available on Apple podcasts, Spotify and YouTube.

Transcript:

Hello and welcome to another episode of the Finrestra podcast! I am Jan Musschoot.

In this episode, I will talk about the sale of HSBC Canada and especially what HSBC can do with the cash it will receive from this sale. But first, let’s do a quick recap of the financial news of November.

FTX, a crypto trading platform, went bankrupt and its founder SBF went from being a multi-billionaire to essentially being broke.

In the euro area, inflation finally went down a little. Inflation was 10% in November whereas inflation was still 10.6 percent in October. Inflation is going down a little thanks to lower energy prices.

There was also news from two large European banks: Swiss Credit Suisse and Italian Monte dei Paschi di Siena both raised capital.

In other banking news – and also the topic of today’s episode – HSBC sold its Canadian subsidiary to Royal Bank of Canada (one of the largest Canadian banks). This fits into a broader pattern that I in one of the previous episodes of the Finrestra podcast called Go big or go home.

If you look at where HSBC derives its revenue from, Canada is barely three percent of revenue. It’s about four percent of profits and also four percent of the balance sheet. So banking in Canada is just a small part of the global group that is HSBC.

So it makes sense to exit this market, because you cannot have the scale you want to be highly profitable. Canada also has some big domestic banks who dominate banking in the country, so it makes sense for HSBC to exit the market, especially given that they received a good price for it.

This Go big or go home strategy is something that HSBC has been following for a few years now. For example, last year they also announced that they would exit [part of] the retail banking business in the US and that they would sell the French retail banking business, which was also about three percent of the group’s revenue. But they cannot compete to with the large French banks in France. And then in November 2022, so last month, HSBC also sold its bank in Oman (in the Middle East) to a local bank.

And this ‘let’s go big or go home’ strategy is not unique to HSBC. For instance last year I did a podcast episode about the sale of Bank of the West by BNP Paribas. The French multinational bank sold its US retail banking division to focus more on its core markets. And that’s also what HSBC has been doing here with the sale of HSBC Canada.

In financial terms, it seems that HSBC has done a pretty good deal because they received 13.5 billion Canadian dollars (which is about 10 billion US dollars). That’s about eight percent of HSBC group’s market cap. So that’s actually a good deal. If you look into the financial statements, they say they will make a net profit of more than 5 billion dollars on this sale above the book value1. And of course, selling the Canadian division will also shrink HSBC’s assets by a little less than 100 billion US dollars. So the sale provides a good boost to the capital ratio of HSBC as well.

Now let’s focus on what HSBC could do with the cash that it will receive.

One possibility is just to return it to the shareholders in a dividend. But that’s kind of boring, so what I would do is to follow the Go big or go home strategy and ‘go big’ in the core markets of HSBC.

HSBC’s core markets are firstly in Asia, where it’s the biggest bank in Hong Kong and also has significant operations in China, India, in the Middle East, and in some other Asian countries.

So what could we do with the cash (or the cash plus some extra borrowed money)?

The obvious takeover candidate would be Standard Chartered. Standard Chartered is another British bank that is based in London and is mostly operational in the Far East (and also partly in Africa and the Middle East). If HSBC were to buy Standard Chartered, there would be synergies of course in the London offices. I’m not sure if they would be allowed to take over the Hong Kong division of Standard Chartered because maybe HSBC would become too dominant in Hong Kong, but at least buying the Asian divisions would be a huge boost to HSBC in Singapore and it would also strengthen the bank in China, India and South Korea. Also in the United Arab Emirates and Asian economies like Malaysia, Indonesia, Vietnam. All those countries would contribute to a higher market share of HSBC and hopefully also to higher profitability and economies of scale.

I already mentioned that they should probably sell the Hong Kong division of Standard Chartered. And I guess they should also sell the African subsidiaries of Standard Chartered because I don’t see a lot of synergies there. And HSBC is mostly focused on Asia and not on Africa. So that would also bring in some extra cash because the 10 billion US dollars won’t be enough to buy standard Charters. But I think there’s a very clear business case to purchase Standard Chartered.

Another possibility would be to stay in the United Kingdom. So I found some research by Mordor Intelligence showing the market share of banks in the British market. You see that Lloyds is the clear market leader while HSBC is only the fourth largest retail bank in the UK (together with Santander UK). So a possible takeover target would be NatWest, which is the parent company above Royal Bank of Scotland – which is currently the third largest bank in Britain. Together with HSBC, they would be about as large as Lloyds Banking Group. So they would be the first or second largest bank in the United Kingdom. This [acquisition] would definitely provide some economies of scale on its British home market and would be quite easy to integrate. I think that deal makes a lot of sense also from a business perspective. Compared to Standard Chartered, where you would need to do a lot of divestments and integration in a lot of markets, the NatWest acquisition would be quite simple in terms of geography. You would also only need the approval of the British authorities. So I think that makes a lot of sense as well.

And then finally, thinking out of the box, we could also look at Credit Suisse. I wouldn’t suggest to buy the entirety of Credit Suisse, although its market cap is so low that with $10 billion you could almost buy the entire bank.

But what is probably a better idea is if HSBC would buy the Asia Pacific operations and maybe also the Middle Eastern operations of Credit Suisse. So I guess you don’t need the entire amount of 10 billion dollars. But by buying the Asia Pacific operations of Credit Suisse, HSBC could strengthen its wealth management in countries like China but also in Singapore and in other East Asian countries. And maybe also strengthen some of the investment banking operations in Asia. I think management of Credit Suisse would probably be happy to sell those divisions because then Credit Suisse can focus more on its core divisions in Switzerland and the Americas. While now CS are a global bank but they don’t have the size they need to be a real global bank.

So these have been three ideas. HSBC has sold its Canadian division for a lot of money. They could either buy Standard Chartered, or NatWest, or the Asian activities of Credit Suisse. I’m very curious of course what you think. Should they just return the money to their shareholders? Or should they buy other banks? Or do you have any other ideas? Maybe they should focus on share buybacks.

As always, you can reach me by mail at jan.musschoot@finrestra.com. Or you can find me on Twitter, I’m @janmusschoot or you can connect with me on LinkedIn.

This has been another episode of the Finrestra podcast. Thanks a lot for listening and till next time!

Go big or go home! (Finrestra podcast episode 3 transcript)

Listen to this episode on Spotify, Apple or YouTube!

Transcript:

“Hello and welcome to another episode of The Finrestra Podcast.

My name is Jan Musschoot.

The topic of today’s episode: Go big or go home!

According to economic theory, banks have good reasons to expand abroad. Bigger banks should benefit from economies of scale. A broader geographic footprint results in a more diversified loan portfolio. So multinational groups should be more resilient against economic downturns.

However, cross-border expansion is not what we observe in the real world. In fact, multinational banks have been selling their foreign subsidiaries for years. Earlier this year, American Citibank announced that it would exit retail banking in 13 countries, most of them in Asia. Last year, Spanish bank BBVA sold its unit in the United States.

Banks are also selling their foreign activities in Europe. Here are some examples, all from 2021.

British HSBC was so desperate to get rid of its French retail bank, that it sold the unit for one symbolic euro. Dutch ING also plans to leave the French retail market. That same ING has sold its retail bank in Austria. Dutch Rabobank decided to wind down its Belgian retail activities, as it couldn’t find a buyer. British NatWest and Belgian KBC have announced they would exit the Republic of Ireland. 

Bankers have good reasons to leave foreign markets. Because policymakers are scared of “too big to fail” banks, so-called systemically important banks need larger capital buffers. More countries also means higher costs for reporting and compliance. Banks have learned that there are few synergies between countries, even for branchless banks that only offer online services, like ING and Rabobank. 

That’s why there is a clear trend towards deglobalization.

But that’s not the end of the story. Not all banks are returning to their domestic past.

Economies of scale are a thing, but not in the sense that bigger is always better.

What you want is to have scale within a market.

A good example is Societe Generale. The French financial services group sold most of its Central and Eastern European units. But SocGen kept its subsidiaries in the Czech Republic and in Romania. In both countries, these banks are the third largest in the market. Hungarian OTP sold its small subsidiary in neighboring Slovakia to KBC-owned CSOB. But OTP has also recently signed a deal to buy the second largest bank of Slovenia. Merged with its existing Slovenian subsidiary, it will become the market leader. And this silent consolidation isn’t limited to the East. French Credit Agricole has been gradually increasing its market share in Italy, for example.

So while European policymakers despair at the lack of cross-border mergers and acquisitions, the much needed consolidation is happening. Banks are reducing their geographic complexity.

And some groups have become robust multinational banks that have a significant market share in multiple countries.

If you want to discuss banks’ strategy, you can find me on Twitter @janmusschoot.

To learn more about our research and courses, check out our website, finrestra.com.

Thanks for listening!”

Financial news November 2021

I also covered the news in the first Finrestra episode of December:

Financial news October 2021

International bank divestments

From the 1990s until the global financial crisis, there was a wave of consolidation and international expansion by Western European banks. Over the past decade, M&A activity has been a fraction of what it used to be. International banks have sold part of their foreign subsidiaries, either voluntarily or because regulators forced them to slim down.

Who did they sell to? Often to local or regional banks.

Examples (note that this is a work in progress! – most recent update 24 August 2024):

Africa

Barclays (UK) sells its controlling stake in Absa (South Africa and 9 other African countries) to investors (2017)

BNP Paribas (France) sells its holdings in Gabon, Mali and the Comoros to Ivorian Atlantic Financial Group (2020)

BNP Paribas (France) sells its subsidiaries in Burkina Faso and Guinea to Guinean Vista Bank (2021)

BNP Paribas (France) sells most of its stake in UBCI (Tunisia) to Tunisian Carte (2021)

Standard Chartered (UK) exits seven countries, 5 in Africa and 2 in the Middle East (2022)

BNP Paribas (France) sells its majority stake in BICIS (Senegal) to pan-African SUNU (2022)

Société Générale (France) sells its subsidiaries in Congo Brazzaville and Equatorial Guinea to Guinean Vista Bank (2023)

Société Générale (France) sells its subsidiaries in Mauritania and Chad to Burkinabe Coris Group (2023)

Société Générale (France) sells its subsidiaries in Burkina Faso and Mozambique to Guinean Vista Bank (2023)

Société Générale (France) sells its subsidiary in Morocco to Moroccan Saham Finances (2024)

Société Générale (France) sells its subsidiary in Benin to the state of Benin (2024)

Société Générale (France) sells its stake in Société Générale Madagasikara (Madagascar) to French BRED Banque Populaire (BPCE) (2024)

Americas

BBVA (Spain) sells BBVA USA to American PNC Financial Services Group (2020)

HSBC (UK) sells it retail business in the USA to American Cathay Bank and Citizens Bank (2021)

MUFG (Japan) sells MUFG Union Bank (USA) to American U.S. Bancorp (2021)

BNP Paribas (France) sells Bank of the West (USA) to Canadian BMO (2021)

HSBC (UK) sells its subsidiary in Canada to Canadian RBC (2023)

Asia and the Middle East

Dexia (Belgium) sells Denizbank (Turkey) to Russian Sberbank (2012)

National Bank of Greece (Greece) sells Finansbank (Turkey) to Qatari QNB (2016)

Sberbank (Russia) sells Denizbank (Turkey) to (United Arab) Emirates NBD (2019)

ABN AMRO (Netherlands) winds down its corporate banking activities in Asia, Australia, Brazil and the US (2020)

UniCredit (Italy) sells most of its stake in Yapi Kredi (Turkey) (2020)

HSBC (UK) wants to exit Turkey (2020)

Citigroup (US) sells its retail banking activities in 13 markets, mainly in Asia (2021)

HSBC (UK) sells HSBC Oman to Omani Sohar International Bank (2022)

Central and Eastern Europe

AIB (Ireland) sells its stake in Bank Zachodni (Poland) to Spanish Santander (2010)

Barclays (UK) sells Expobank (Russia) to Russian financier Igor Kim (2011)

KBC (Belgium) sells Kredytbank (Poland) to Spanish Santander (2012)

KBC (Belgium) sells its minority stake in Nova Ljubljanska Banka (Slovenia) to Slovenia (2012)

KBC (Belgium) sells Absolut Bank (Russia) to Russian investors (2012)

Erste (Austria) sells its subsidiary in Ukraine to Fidobank (2012)

KBC (Belgium) sells KBC Banka (Serbia) to French Société Générale and Norwegian Telenor (2013)

National Bank of Greece (Greece) sells UBB (Bulgaria) to Belgian KBC (2016)

UniCredit (Italy) sells its controlling stake in Pekao (Poland) to local investors (2016)

RBI (Austria) sells its bank in Slovenia to Biser Bidco (2016)

Alpha Bank (Greece) sells Alpha Bank Srbija (Serbia) to Serbian AIK Banka (2017)

Cyprus Popular Bank (Cyprus) sells Marfin Bank (Serbia) to Expobank CZ (Czech Republic) (2017)

Eurobank (Greece) sells Bancpost (Romania) to Romanian Banca Transilvania (2017)

National Bank of Greece (Greece) sells its subsidiaries in Serbia to Hungarian OTP (2017)

Piraeus Bank (Greece) sells its unit in Serbia to Serbian Direktna Banka (2017)

Société Générale (France) sells most of its Central and Eastern European subsidiaries to Hungarian OTP (2017-2019)

Société Générale (France) sells Euro Bank (Poland) to Portuguese Millennium bcp (2018)

Bausparkasse Schwäbisch Hall (Germany) sells its stake in CMSS (Czech Republic) to Belgian KBC (2019)

Piraeus Bank (Greece) sells PBB (Bulgaria) to Greek Eurobank (2019)

National Bank of Greece (Greece) sells Banca Românească (Romania) to Romanian Eximbank (2020)

Danske Bank (Denmark) sells its unit in Estonia to Estonian LHV Pank (2020)

Danske Bank (Denmark) sells its business in Latvia to Latvian Citadele Bank (2020)

Handelsbanken (Sweden) closes its branches in Germany and Poland (2020)

ING (Netherlands) exits retail banking in the Czech Republic (2021)

Crédit Agricole (France) sells its subsidiary in Serbia to Austrian RBI (2021)

Crédit Agricole (France) sells its subsidiary in Romania to Romanian Vista Bank (2021)

RBI (Austria) sells its subsidiary in Bulgaria to Belgian KBC (2021)

Apollo (USA) sells NKBM (Slovenia) to Hungarian OTP (2021)

AnaCap (UK) sells Equa bank (Czech Republic) to Austrian RBI (2021)

Commerzbank (Germany) sells its subsidiary in Hungary to Austrian Erste (2021)

Sberbank (Russia) planned to sell its subsidiaries in 5 CEE countries to local banks (2021), but Sberbank Europe was closed by the ECB in 2022

Igor Kim (Russia) sells AS Expobank (Latvia) to Latvian Signet Bank (2022)

Société Générale (France) sells Rosbank (Russia) to Russian Interros (2022)

JC Flowers (USA) sells First Bank (Romania) to Italian Intesa Sanpaolo (2023)

Alpha Bank (Greece) sells its operations in Romania to Italian UniCredit (2023)

Eurobank (Greece) sells Eurobank Direktna (Serbia) to Serbian AIK Banka (2023)

HSBC (UK) sells its unit in Russia to Russian Expobank (2024)

HSBC (UK) sells its unit in Armenia to Armenian Ardshinbank (2024)

OTP (Hungary) sells OTP Bank Romania to Romanian Banca Transylvania (2024)

Société Générale (France) sells its private banking subsidiaries in the UK and Switzerland to Swiss Union Bancaire Privée (2024)

For more on bank consolidation in Central and Eastern Europe, see this report by Deloitte.

Western Europe

Citigroup (US) sells its retail banking activities in Belgium to French Crédit Mutuel Nord Europe (2012)

Crédit Agricole (France) sells Emporiki (Greece) to Greek Alpha Bank (2012)

Barclays (UK) sells its retail branches in Italy to Italian Mediobanca (2015)

HSBC (UK) wants to sell its retail banking operation in France (2020) Update: sold to French My Money Group (2021)

Degroof Petercam (Belgium) sells its private banking activities in Spain to Andorran Andbank (2020)

Rabobank (Netherlands) shuts down its online savings bank in Belgium (2021)

ING (Netherlands) sells its retail banking activities in Austria to Austrian bank99 (2021)

KBC (Belgium) sells its subsidiary in Ireland to Bank of Ireland (2021)

Crédit Agricole (France) sells Bankoa (Spain) to Spanish Abanca (2021)

Handelsbanken (Sweden) will exit Denmark and Finland (2021)

Degroof Petercam (Belgium) sells its private bank in Switzerland to Swiss Gonet & Cie (2022)

RBC (Canada) sells RBC Investor Services (Luxembourg) to Franco-Spanish1 Caceis (2022)

HSBC (UK) sells its retail bank in Greece to Greek Pancreta Bank (2022)

Crédit Mutuel (France) sells Targobank Spain to Spanish ABANCA (2023)

Fosun International (China) sells private Hauck Aufhäuser Lampe (Germany) to Dutch ABN AMRO (2024)

Exceptions

Caixabank (Spain) increases its stake in Banco BPI (Portugal) to 84.5% (2017)

BNP Paribas (France) buys Raiffeisen Bank Polska (Poland) from Austrian RBI (2018)

Crédit Agricole (France) buys three small banks in Italy (2017) and another one in 2020.

KBC (Belgium) buys OTP Banka Slovensko (Slovakia) from Hungarian OTP (2020)

BBVA (Spain) increases its stake in Garanti (Turkey) to 49.85% (2017) and launches a bid for the remaining shares (2021)

Eurobank (Greece) merges its subsidiary in Serbia with local bank Direktna Banka (2021)

For examples from 2022 and later, see this post.

Random reads summer 2020

Banking update August-September 2020

  • ABN AMRO exits all its non-European corporate banking activities
  • CaixaBank and Bankia are planning a merger
  • HSBC wants to sell its French retail network
  • Rumors of a merger between Credit Suisse and UBS

The strategy of European banks ever since the Global Financial Crisis has been to focus on profitability1. How do you achieve a higher return on equity? There are two commonly followed options. Either you cut costs, e.g. by merging banks in the same geography and closing down the redundant branches. Or you sell the business, especially when you’re an also-ran outside of your home market.

The case for a corona consolidation of European banks and insurers

Many European banks and insurance companies are trading well below their book value.

Large firms can unlock a lot of value by taking over smaller competitors, thanks to the negative goodwill. Consolidation would support the profitability of the financial industry.

Italy

Italian banks in particular would benefit from a consolidation of their fragmented domestic market1. In February, Intesa Sanpaolo launched a bid for UBI Banca. UniCredit should consider a similar deal with Banco BPM, Banca Monte dei Paschi di Siena or BPER Banca. Also, French BNP Paribas could merge its subsidiary BNL with one of those banks.

Spain

Spanish banking is already quite concentrated. Santander took over Banco Popular in 2017. The integration was completed in 2019. Santander and BBVA could acquire Bankinter, Bankia, or Banco de Sabadell. Of course, further domestic growth of the majors depends on regulatory approval. The two global Spanish banks definitely have the expertise to execute such an operation.

Figure 1 shows the number of bank branches relative to population for Spain, Italy and the Netherlands. It’s clear that Italy and Spain have a lot of potential for cost cutting.

Figure 1: Commercial bank branches per 100,000 adults in Spain, Italy and the Netherlands. Source: World Bank.

Portugal, Poland and the Netherlands

In neighbouring Portugal, Banco Comercial Português seems a good match for Santander. Especially since both Iberian banks are active in Poland. Speaking of Poland, Santander and ING might be interested in mBank. mBank is owned by Commerzbank, a bank that desperately needs to focus its strategy.

A foreign group could shake up the uncompetitive Dutch market by buying ABN AMRO. However, as most of ABN AMRO is still state owned, this will be complicated.

Insurance

Many listed insurers like Aegon, NN Group (NL), Ageas (BE), Baloise, Swiss Life (CH) or UnipolSai (IT) trade at a significant discount to their book value. This could be an opportunity for big insurance companies AXA, Allianz and Zurich Insurance Group.

Consortiums of buyers could also divide the operations of their targets (although there is a bad precedent for this scenario).

Exciting times!

Update 9 June 2020: Banco Sabadell plans to close 235 branches

Update 23 July 2020: Marc Rubinstein at Net Interest came to the same conclusion: “Coming out of Covid, when banks realise they don’t need such a large physical presence, further consolidation is likely. What’s more, if equity valuations don’t recover, banks may be able to use negative goodwill to cover restructuring charges.”