This is no longer the nineties
The regional M&A market of financial institutions is buzzing around us: the corona virus halted in the first months, but then started and even accelerated negotiations aimed at ownership optimization (acquisitions, mergers) of banks and insurers. However, the seller and buyer aspects were not changed by the pandemic, they developed in the first half of the 2010s.
While in the 1990s and 2000s sellers were motivated primarily by the intention to privatize and buyers by the business attractiveness of expansion in Central and Eastern Europe, this changed as a result of the 2008 financial crisis. Over the past ten years, both sides have focused more on common sense:
it was driven by (size) efficiencies and optimization of market presence by country, which projects consolidation and increased market concentration for the sector as a whole.
In practice, this has meant that in many cases the aim has been to increase existing market shares, such as above 5%, and to eliminate shares below critical, economies of scale, for dry financial reasons. This is why there are relatively few new entrants entering the markets today, but rather the transactions of domestic players already well known in the markets of each country, whose owners (whether foreign or domestic) often “exchange” each other’s interests. All this is supplemented by some “national protectionism”, it is enough to think only of the Polish state, which buys several banks, or the Hungarian state, which is now joining two insurers.
Prices have also “landed” over the past decade: while financial institutions were often bought for 2-3 times their book value before the 2008 crisis, this is now a rarity, especially for traditional commercial banks, whose shares are listed on stock exchanges. and in M&A transactions, customers are reluctant to give much more than their book value (a P / BV ratio of around 1 is typical).
Efficiency gains and “national protectionism”
The recently announced financial institution transactions in Hungary also fit into the above picture. As prices are not known in most cases, this is certainly true primarily for the motivation of sellers and buyers. Clearly, market expansion and / or (size) efficiency gains may motivate Sopron Bank’s customer, the domestically owned MagNet Bank, and Commerzbank’s customer, the Austrian majority-owned Erste.
The same applies to Vienna Insurance Group, which acquires 55% of Aegon, AIK Bank, which acquires Sberbank, and the Serbian company Miodrag Kostic behind it. Although the latter is a “technically” new entrant in the Hungarian market, it purchases itself (perhaps only temporarily) for the Hungarian banking market as part of a regional package, thus optimizing it at the regional level. For similar ownership reasons, Budapest Bank will soon be merged into MKB Bank, with the difference that the identity of the underlying owners will not change there.
The state takeover of 45% of Aegon and Union Biztosító fits into the “national protectionism”, which is difficult to explain economically, especially so that the price is not known yet, so it is not known what the expected cash flow will be for Hungarian taxpayers. The only cucumber egg seems to be the new investor of Gránit Bank: the BDPST Group, which is owned by István Tiborcz, is entering the Hungarian banking market as a new player.
What we know so far
MagNet is Sopron Bank: According to the announcement of 14 October 2021, the Hungarian-owned MagNet Bank Zrt. will acquire the Hungarian subsidiary of Hypo-Bank Burgenland AG, Sopron Bank Zrt. Sopron Bank becomes a 100% subsidiary of MagNet Bank. With the acquisition, MagNet Bank will not only acquire a branch network in Western Hungary, but will almost double its market share. Based on the balance sheet total, MagNet Bank is much larger than Sopron Bank, but in terms of loans, Sopron Bank was even slightly larger than MagNet at the end of 2020. MagNet Bank’s financial figures were better last year, with Sopron Bank operating at a loss. We do not know the purchase price.
SIKbank belongs to AIK Banka: According to the announcement of November 3, 2021, Miodrag Kostic, a Cypriot-Serbian-Slovenian consortium, but in fact the most significant billionaire in Serbian business in recent decades, may buy into the Hungarian banking sector from Russia’s Sberbank , Bosnia and Herzegovina and Serbia) and the loss-making Hungarian interest again last year. The Portfolio contacted the buyer, according to the answer given to us, legally the Serbian AIK Banka is the buyer in Hungary. Their long-term strategic goal is to become one of the leading banking groups in the region, based on a trio of digital transformation, a quality customer experience and a highly skilled staff. According to their information, the Hungarian subsidiary is as important to them as the others, but based on market rumors, it is conceivable that they will overdo it. We do not know the purchase price.
Budapest Bank merges with MKB: According to the announcement of 15 November 2021, the two member banks of the banking group, Budapest Bank and MKB Bank, will merge on 31 March 2022, thus creating the basis for the unified operation of the future superbank. The merged banks will temporarily continue to operate under the name MKB Bank Plc. The Takarék Group will join the merged bank in the second quarter of 2023, while Magyar Bankholding will manage the ongoing operational harmonization of the three banks. The final brand and image of the single financial institution, which will be made up of three banks, is scheduled to be introduced in early 2023; their development started as part of a professional branding process. The goal is to build an attractive brand for customers that transforms the traditional image of financial institutions, unifies them and looks to the future. They would prepare the united bank for listing by 2025 and want to be able to enter the international market in the new strategic period starting in 2025.
Ersté belongs to Commerzbank: Based on the announcement of 17 December 2021, after a long and complicated negotiation process, Erste Bank will take over the operation of Commerzbank, which is leaving Hungary. The transaction is expected to close in the second half of 2022, during which Erste will further expand its corporate business. The similarities between the two organizations allow for a smooth transition, Erste said. The purchase price has not been announced yet. Erste Bank plans to integrate the credit institution into its own organization once the transaction is completed. The transfer of customer accounts is expected in the second half of next year. According to an interview with Portfolio, Corporate Business Manager Richard Szabados, Erste Bank will rise from sixth to fifth in the Hungarian corporate finance market with transactions, and may even reach fourth place a year earlier than planned.
Aegon and Union insurers become Austrian-Hungarian owners: On December 22, 2021, after lengthy negotiations and locations, the Hungarian state’s negotiations on the sale of Aegon, which was prevented in April, reached a public milestone. The Austrian Vienna Insurance Insurance Group will hand over 45% of its two Hungarian insurers to the Hungarian state, so that its interest in the new Aegon, Union, which has finally changed hands, may also become a joint Austrian-Hungarian-owned insurer. They are the third and sixth largest insurers in Hungary, leading the market in the insurance sector with a combined share of 19%. The agreement leaves VIG with the right to exercise operational control in addition to its controlling influence. To the best of our knowledge, Aegon’s organization was not surprised by the news, but the involvement of Union Insurance in the deal is a surprise. The Hungarian state’s intentions to influence the market with the transaction are not yet known, and the financial return on the investment may largely depend on the hitherto unknown purchase price.
New major investor at Granite Bank: According to the announcement dated 30 December 2021, BDPST, which is owned by István Tiborcz, will acquire the majority of EPM’s shareholding in EPM, which is owned by Éva Hegedüs, President and CEO, 57% of the shares in Gránit Bank. The transaction does not change the strategic objectives and business model of Gránit Bank, the bank is still managed by Éva Hegedüs, President and CEO. The bank is launching a new Employee Co-ownership Program, as a result of which its equity will increase to over HUF 40 billion. According to the statement of István Tiborcz, “As a committed financial investor, our group of companies wants to support the business strategy of Gránit Bank in the long run. We want to provide the capital needed for the bank’s further dynamic growth in the form of a capital increase. The BDPST Group aims to further diversify the group’s activities through the investment. We believe in the business opportunities of the financial sector, which is changing in Hungary, but also globally, which is why we are looking for an investment where the digital approach, which is the key to the success of the future, has already been given ”.
Cover image: Getty Images
Source: Portfolio.hu – Bank by www.portfolio.hu.
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