Emerging Europe: Sberbank takes a breather after DenizBank deal
CEO signs $3.6 billion acquisition; Jumps past 5% foreign-income target
Sberbank signed an agreement to buy DenizBank last month in the biggest-ever acquisition by the state-owned Russian lender. The TL6.5 billion ($3.6 billion) cash buyout comes after a long-running contest for Turkey’s fifth-biggest bank by assets, with previous negotiations involving Qatar National Bank and HSBC.
The sale will free up much-needed capital for Dexia, the former owner. The Franco-Belgian group paid an initial $2.5 billion for 75% of DenizBank in 2006, subsequently building up a 99.85% share.
The Turkish lira has declined roughly 30% against the euro since 2008, which will adversely affect Dexia’s return on its investment. But the sale is still an enviable achievement in a region where many eurozone lenders are seeking to offload assets, often in markets far less desirable than Turkey. Loan growth in Turkey is slowing, yet still healthy at around 15%.
This is the fourth acquisition by Sberbank over the past year. In January, it closed a $1 billion acquisition of Russian investment bank Troika Dialog. It also bought nine relatively small-scale banking operations in central and eastern Europe belonging to Austria’s Volksbank in January, paying just over $500 million.
|Sberbank chief executive German Gref|
"I wouldn’t rule out further acquisitions [by Sberbank]," says Gleb Shpilevoy, Russian banks analyst at Raiffeisen in Vienna. Nevertheless, during a signing ceremony for DenizBank in Istanbul, Sberbank chief executive German Gref told reporters that another large international acquisition by Sberbank was unlikely, at least until after 2014. "We don’t plan any more acquisitions," he said in comments in Istanbul reported by Reuters.
It now appears Gref might be reconsidering an acquisition in Poland, previously thought to be a priority for the bank. In an interview last month with the Russian daily RBK, Gref is reported to have said he did not plan an acquisition in Poland "in the near future".
One common theory in Warsaw’s financial community has been that Sberbank would always encounter greater political resistance to an acquisition in Poland than in Turkey. Memories of Russian military involvement in Poland are too recent, goes the theory.
But the acquisition of DenizBank will also mean Sberbank achieves and even doubles its target for international revenues. In a 2008 strategy document, shortly after Gref arrived as CEO, Sberbank said it would target around 5% of net income from international operations by 2014.
After the DenizBank deal, Sberbank will have around 10% of its assets outside Russia, earning around 10% of net income, says Shpilevoy. Sberbank is expanding organically in the region too, more than doubling its branch network in Kazakhstan this year, for example.
Yet thanks to the DenizBank deal, Turkey will contribute between 6% and 7% to Sberbank’s net income. DenizBank’s 2011 net income was up 42% on 2010 at $577 million, partly thanks to loan growth of around 70% in the two years from the end of 2009.
Guidance from Sberbank suggests that DenizBank will cost slightly less than 100 basis points of Sberbank’s tier 1 capital, which was 11.8% at the end of the first quarter. The blow will be further softened by Sberbank’s high profitability. Sberbank’s return on equity last year was 28%. It made a record R15.9 billion ($11 billion) in net profit in 2011, up 74% year on year.
DenizBank’s loan-to-deposit ratio is also relatively low, at 109%. DenizBank’s management is generally well respected, many having stayed with the bank for 10 years or more. The existing management team will remain after the takeover.
Deutsche Bank, Rothschild and Sberbank subsidiary Troika Dialog advised Sberbank. Bank of America Merrill Lynch and Goldman Sachs advised Dexia.
Sberbank says one motivation for the purchase is the growing trade and investment connection between Russia and Turkey, including tourism. According to Sberbank, Russia is now Turkey’s sixth-largest export market. Energy supplies make Russia Turkey’s largest source of imports.
Bankers say Turkish business groups have tended to concentrate on their home market, although some are expanding in Russia. Turkish brewer Anadolu Efes bought SABMiller’s Russian business in 2011. Turkish household goods firm Arcelik has factories and distribution in Russia.
Similarly, western European firms are expected to continue to dominate foreign direct investment in Turkey. But Russia’s Alfa Group has been fighting alongside Nordic telecoms firm Telia Sonera to gain control of Turkcell, Turkey’s biggest mobile operator. Russian firms are also helping to construct a pipeline and nuclear power station in Turkey.