Haitong sets out its stall after BESI buy

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The investment banking arm of Banco Espírito Santo’s search for an investor had begun long before the shenanigans at its parent bank began to come to the surface in the summer of 2014, according to Francisco Cary, BESI’s deputy CEO and chief financial officer.

“In late 2013 we felt that the challenges our parent bank was facing meant that we would need to find an investor who would subscribe to a capital increase which would help us to continue with the international development of our business,” he explains. “Our focus from the start was on investors in the Middle East and Asia, because we felt we could give them access to business opportunities in markets where they had limited direct exposure.”

As the full extent of the mess at the holding company became more apparent, so too did the recognition that BESI needed a deep-pocketed investor prepared to take a majority 80% stake rather than a partner with a minority holding. Following the announcement of the good bank-bad bank split in August, according to Cary, it was acknowledged that a 100% sale would be necessary. 

That paved the way for BESI’s purchase by Chinese securities firm Haitong, which was concluded with astonishing speed. The tender for the 100% sale was put out at the start of November, and Haitong had signed on the dotted line by early December. “The Bank of Portugal wanted the deal to be completed by the end of the year so that it would not complicate the process of selling Novo Banco as a whole, which put added pressure on the bidders,” says Cary. “I’ve been working in investment banking and M&A for many years, and this was one of the fastest transactions I’ve ever seen.” 

It is easy enough to see why the bank resolution fund virtually bit Haitong’s hand off. “It was a fantastic deal for Novo Banco,” says one local analyst. “At a time of such uncertainty, to have sold an investment bank with a very low ROE and negative net income in a number of countries for €380 million, or 0.7 times book value, was an amazing achievement. It was also a great deal for the other Portuguese banks, because it reduces the potential shortfall from the Novo Banco sale.”

Whether the BESI deal will be as beneficial to the buyer is open to question. “We can’t deny that we were left traumatised by the events of last summer, which came as a big surprise to us,” says Cary. “But in an overall context we have emerged sufficiently unscathed by what happened. Business is now picking up again, especially in Portugal and Brazil, which have traditionally accounted for about two-thirds of our revenue. Since 2010, our UK operation – Execution Noble – has been the third main anchor of our business, and the impact there was probably greater than in other countries, but that too is picking up slowly.”

Aside from a small broker-dealer operation in Hong Kong, which has been closed, Haitong has acquired BESI’s entire global franchise, which also includes branches in Spain and Poland, a securities house in Mumbai and a representative office in Mexico. Haitong is also buying into BESI’s experience in Portuguese-speaking African markets such as Mozambique and Angola. 

“The acquisition gives Haitong access to a full set of operating licences across the world that it would have taken many years to build from scratch,” says Cary. “Haitong’s long term ambition is to become one of the top 10 investment banks in the world, and they intend to use BESI as a platform to accelerate that growth.”

For the time being, the investment bank will maintain the tainted Espírito Santo label. “We had the option to change the name, but made a conscious decision not to do so,” says Cary. “We have maintained relationships with clients who recognise that we were to some extent a victim of the scandal. The strength of those relationships won’t be affected by our name.” 

Maybe not, but analysts say it may be only a matter of time before the BESI franchise is rebranded by its new Chinese owners.