Author: Rupert Wright
Austria has always prided itself on being the doorway to central Europe, dating back to the days of the former Soviet Union. Its bankers were able to structure deals in the region using a variety of techniques including countertrade and forfaiting. If you wanted to exchange old computer parts for Zetor tractors or tins of bottled fruit, you went through Vienna.
Now Germany’s second biggest bank, HypoVereinsbank, is storming through the doorway and buying Austria’s biggest banking group. Surprisingly, the purchase of Bank Austria for e7.8 billion has been greeted with widespread equanimity – perhaps because Austrians are pleased that at least somebody in Europe is prepared to do business with them or, more likely, a reflection on the 34% premium on the share price that the German bank is prepared to pay. Either way, the deal is a coup for HypoVereinsbank, provided it can prove that it is not paying too much for its new acquisition.
HypoVereinsbank, formed less than three years ago by the merger of Munich’s two largest banks – Bayerische Vereinsbank and Bayerische Hypotheken- und Wechsel-Bank – badly needed a deal of this order to restore its status among investors. The bank had been facing criticism because of a property lending scandal that led to the discovery that Hypo’s book value was widely overstated. However, it is surprising that no sooner has this problem been resolved than the bank is once more on the acquisition trail.
Benign analysts argue that with one stroke Albert Schmidt, chairman of HypoVereinsbank, has restored some lustre to his financial institution, and showed that German banks are capable of pulling off takeovers, even if they seem to find it hard to achieve in their own country. Cross-border banking deals have often proved hard to pull off successfully, but Germans and Austrians have long-standing cultural links that should eliminate some of the potential problems. Culturally, Munich and Vienna are close, with much more in common than, say, Hamburg and Vienna. Even so, many German cross-border banking deals follow a traditional course: German bank proposes merger or takeover; pays enormous premium; sacks or loses most of the staff, then changes the name back to the German parent.
However, initial signs are optimistic. Bank Austria, together with the staff it acquired in the merger with Creditanstalt, has a good record in central and eastern Europe. It came badly unstuck in Russia in 1997 – who didn’t? – which is one of the reasons that it became a takeover target. But the Bank Austria group, which includes a two brand strategy in Austria with both Bank Austria and Creditanstalt – imposed more by luck than judgement by the countries’ political leaders, but which has proved very successful – has also developed an impressive online banking business. It is also a market leader in private banking in Austria. However, its size meant that it was always a potential takeover target. Analysts are expecting further consolidation in the Austrian market, with banks such as Erste Bank and RaiVeisenverband tipped as the next targets.
The group has one international brand, with the rather long-winded name Bank Austria Creditanstalt International (BACAI). This will be renamed Bank Austria International, which will absorb HypoVereinsbank’s units in the region. A spokesman for the bank insists that Austria will remain responsible for Austrian and central European business. Bank Austria is already the biggest foreign bank in central Europe and has a good ability to source deals in the region. This year it has already pulled off a number of impressive deals, such as bond issues for the City of Krakow, and a corporate bond for Polish airline Lot. This deal-making ability will fit well with HypoVereinsbank’s strengths in loans and bond syndications, but which has struggled to pick up enough business in the region.
The timing is good. Poland, Hungary and the Czech Republic are in negotiation to join the European Union in 2002. Growth is expected to be greater than either Germany or Austria, although with that growth comes risk. In Poland, Bank Austria has a 50% stake in Powszechny Bank Kredytowy, which it is merging with its subsidiary Bank Creditanstalt Poland; it has 5% of the banking market in Hungary and the Czech Republic.
On paper at least, this looks like one German bank deal that will happen, and makes sense. The combined group will have 8 million customers, 2,000 branches, 65,000 employees and equity capital of e17 billion. “I have always felt that Bank Austria was undervalued due to growth prospects in the region and I don’t see why we couldn’t transfer that expectation to HypoVereinsbank, although at a more muted level simply because of its greater size,” said Matthew Czepliewicz, East European banking analyst at Salomon Smith Barney.
