An emerging markets powerhouse
EUROPEAN INSTITUTIONS DOMINATE the competitive central and eastern European banking market. Italy’s UniCredit, Austria’s Erste and Raiffeisen, Belgium’s KBC and France’s Société Générale are by far the biggest international banks in the region, with a combined total asset pool of $290 billion. The US banks, in contrast, are largely conspicuous by their absence. There are two exceptions, though. One is the ubiquitous Citi. The other is the equally ubiquitous but perhaps less flamboyant GE Money, the consumer finance and banking arm of the industrial conglomerate General Electric.
Over the past 15 years, GE Money has established itself as a coming force in emerging Europe. It now has a presence in eight countries (the Czech and Slovak Republics, Hungary, Latvia, Poland, Romania, Russia and Turkey) achieved primarily through acquisitions and strategic partnerships – a policy it has replicated throughout its international businesses. "We’ve grown through 90 acquisitions," says Dave Nissen, chief executive and president of the firm – and in a relatively short amount of time. "GE Money didn’t really exist outside the US until the early 1990s so it’s a relatively young business," he adds.
In central and eastern Europe, the firm’s growth has accelerated, especially since the turn of the century. In 1999 GE Money had about $2 billion of total assets; today that figure is $23 billion. That compares with total assets of $88.7 billion in the EMEA region.
Its profitability in CEE is equally impressive. In 2004 its net income was $230 million; in 2006 it was $428 million. The 2007 results have yet to be announced but GE Money’s executives are confident that its strong performance will continue.
"We have had a phenomenal track record in central and eastern Europe dating back to 1994-95," says Dmitri Stockton, head of GE Money’s CEE business.
The firm first entered Austria before turning its attention to other countries in central Europe. As its presence has expanded, so GE Money’s strategy has developed.
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"We have had a phenomenal track record in central and eastern Europe dating back to 1994-95. We have evolved initially from a consumer finance business and are now focused on becoming a top-five player in universal banking"
Dmitri Stockton, GE Money |
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"We have evolved initially from a consumer finance business and are now focused on becoming a top-five player in universal banking," says Stockton. That means focusing beyond core products such as credit cards, mortgages and auto loans and doing more business in such areas as lending to small and medium-sized enterprises and financing infrastructure projects.
Not that the core businesses are lagging. The firm’s auto loans business is delivering 25% a year growth, and the mortgage business is growing at a staggering 70% a year.
Opportunistic strategy
One of the defining features of GE Money’s strategy is its ability to act quickly. "Throughout its history, GE has been an opportunistic firm," says Nissen. "Our strategy changes according to market conditions."
There is no one-size-fits-all, predetermined approach to the region. Stockton highlights the firm’s Czech concern as an example of a more gradual approach to building a business. The firm entered the country in the late 1990s, buying three small companies and integrating them. "It was a more traditional route," says Stockton. "We invested in products and in distribution. We put in place the right risk management practices." In the decade since, GE Money in the Czech and Slovak Republics has built up more than $2 billion in assets, providing services including personal loans, sales finance and auto leases.
In Latvia, too, the firm is taking a measured approach. In 2004 it bought RD Lizinga Grupa, a leading provider of micro-loans. Last year it followed this with the purchase of Baltic Trust Bank. Although BTB is only Latvia’s 14th-biggest bank in terms of total assets, it is top five by number of branches. The US firm is keen to continue making further investments in the Baltic state.
In contrast, in other markets, such as Poland and Turkey, GE Money has adopted a more big-bang approach through a high-profile acquisition and a strategic partnership. In Poland, for example, the firm will augment its existing GE Money Bank business by buying a 66% stake in New BPH from UniCredit for €625.5 million. The agreement, Stockton reckons, will be finalized in the first quarter of 2008, pending regulatory approval.
New BPH is the outcome of a spin-off of a portion of Bank BPH, comprising 200 branches, into Bank Pekao. Both Bank BPH and Pekao fell into UniCredit’s hands following the Italian firm’s purchase of Germany’s HVB. However, Polish regulators were concerned that the transaction gave UniCredit too much power and insisted on the subsequent disposal of some of BPH’s assets. UniCredit will retain a stake of just over 5% in New BPH. GE Money is also taking a 49% stake in BPH TFI, the asset management arm, from Cabet Holding, a wholly owned subsidiary of Bank Austria Creditanstalt.
Stockton says that the Poland business might receive up to a quarter of the firm’s intended $200 million to $225 million investment outlay earmarked for central and eastern Europe next year. He adds that GE Money plans to make similar investments in Poland in subsequent years.
The two combined businesses – GE Money Bank and Bank BPH – will rank fifth in terms of lending assets after the transaction. The two banks will have 330 branches and Stockton says the plan is to add another 200 over the next three years.
The BPH "deal was in the ship zone in what we are looking to achieve," he adds, pointing out that the firm will be able to provide services including consumer finance, SME lending, e-banking, leasing, factoring and other aspects of retail and corporate banking. "Poland will be one of the biggest businesses in GE Money." The new company will probably be quoted on the stock exchange in the first half of 2009, he adds.