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António Champalimaud |
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The frantic round of deal-making in Portugal’s banking sector triggered by António Champalimaud’s decision to sell off his string of privately held banks has now come to a halt. The music may have stopped, but the dancers are still eyeing each other to see who might make the first move in another round of consolidation. The key partner over which a takeover contest might develop is Banco Português de Investimento – now the smallest independent publicly held bank in Portugal since the proposed merger between it and the family-dominated Banco Espirito Santo fell through.
The end result of the break-up of the Champalimaud empire is that there are now four main domestic banks. In the first rung are Banco Comercial Português (BCP) and the state-owned Caixa Geral de Depósitos, which between them control more than half of the domestic market. Then, as second-tier players, are Banco Espirito Santo (BES) and Banco Português de Investimento (BPI), along with the foreign-owned banks. Spain’s BSCH is also strongly placed now.
The Espirito Santo-BPI merger probably failed because of differences over which partner would end up in control, though officially, differences of culture and on agreeing terms are blamed. Given that Espirito Santo’s family-dominated ownership structure puts it out of the frame, the only sizeable takeover target left among Portuguese banks is BPI.
Nonetheless, BPI feels confident that it can go it alone, according to board member Rui Martin dos Santos. Also, any potential predator would have to win the support of the three large foreign stakeholders in BPI – Spain’s La Caixa, Banco Itaú of Brazil (which has increased its shareholding to 15%), and German insurance giant Allianz.
Dos Santos is quite frank about the need for action. “On the cost base side we have to improve,” he says. “Plans are in place to improve our efficiency through cost savings in terms of early retirement, the automation of credit decisions, and more focused marketing following on from our broad-brush brand-marketing campaign.”
Portuguese banking is now the scene of dogged trench warfare over market share. Loans have grown by 25% a year, whereas deposits have increased by between 8% and 9% over the last year. Three years ago the balance of credits to deposits stood at around 60%, now they represent more than 120%. As a result, although Portuguese banks generally have good solvency ratios, they are growing ever more reliant on funding from foreign banks.
There is still strong loan demand from the corporate sector and particularly middle-market companies. This is partly because of the recent shift away from using equities and capital markets to raise funds. The small size of most Portuguese corporate bond and equity issues means that as a method of raising funds the costs don’t compare particularly favourably with straightforward bank loans.
However, BSCH analyst Manuel Preto observes that a growing number of companies – particularly in IT and associated services – are expected to go to market on high ratings. “But that has already stopped,” he says, “and as banks start restricting their credits to such companies they will face a liquidity problem.” As a result, he expects demand further down the pipeline for further financial reconstruction. “Highly geared companies will have to readjust their financing,” he says. “A swing back from bank lending to debt and equity markets is inevitable.”
Following the collapse of its merger with BPI, Banco Espirito Santo is looking to organic growth to improve on its recently declared 11% rise in profits for 2000. “Even without BPI we are the second largest privately held Portuguese bank, with some 1.5 million clients,” observes José Maria Espirito Santo Ricciardi, vice-chairman of investment banking arm BES Investimento. “There is considerable scope to expand our product lines since many of our customers are single account holders or have bought only own or two products.”
BES is not the only Portuguese bank to see cross-selling and diversification as the way forward. BCP, for instance, is exploring new ways for the investment banking arm to access the retail bank’s client base of small to medium-size companies.
In investment banking, Portuguese banks are seeking larger opportunities farther afield. Brazil is the favourite destination. Espirito Santo is working in partnership with Bradesco on servicing non-financial companies, while BPI has a natural ally through its major Brazilian shareholder, Banco Itaú.
