Middle East: Sawiris’ banking push reaches Europe
Telecoms tycoon backs new SME online lender; chairman Péretié sees sector-beating ROE.
|Naguib Sawiris is investing €50 million in RiverBank and says it is a great addition
to his European operations
Naguib Sawiris, the Egyptian billionaire and frontier telecoms specialist, is turning his sights to risk of a different dimension – European small and medium-sized businesses – as his interest in the financial sector continues to grow. Better known for his telecoms businesses in countries such as North Korea and Zimbabwe, the Orascom founder’s family vehicle Marchmont has become the majority shareholder of a new ECB-licensed and Luxembourg-based online lender, RiverBank, launched in April.
The new bank will target European SMEs, primarily in Germany and the Netherlands.
The investment is the latest example of Sawiris’s shift away from telecoms towards real estate, mining and finance since selling part of Orascom to Russia’s Vimpelcom in 2010.
Sawiris resigned as CEO of Orascom late last year, six months after the Egyptian investment banking firm he acquired in 2015, Beltone, agreed to buy a majority of New York-based frontier markets broker Auerbach Grayson & Co. The latter announced a tie-up with Dubai-based investment bank Arqaam Capital in February. The billionaire has also made frustrated overtures in recent years towards rival Egyptian investment banks CI Capital, originally part of Commercial International Bank, and EFG Hermes, which also has a strategy to expand in other frontier markets.
In Europe, RiverBank grew out of RiverRock, a London-based and SME-focused merchant banking outfit run by Société Générale’s former head of corporate and investment banking, Michel Péretié.
RiverBank will be able to take smaller but more numerous tickets than RiverRock’s direct lending activities. It will offer clients a faster and more flexible service than traditional banks, Péretié tells Euromoney, thanks to its freedom from legacy bureaucracy and IT systems.
“It’s a traditional corporate banking business with 2017 technology,” says Péretié. “The model is interesting as, in the corporate banking sector, there are no other fintechs in continental Europe.”
We will be competitive, but the fact that we are cost-effective doesn’t imply weaker standards in terms of credit analysis - Michel Péretié, RiverRock
Although Europe has several online-only retail banks, this will be the continent’s only corporate-focused online-only banking institution, according to Péretié, although he says there are similar firms in the US. As clients or their intermediaries process their own applications online, helping keep costs down, the firm is hoping for a return on equity of around 18%, far higher than mainstream European banks.
Sawiris, adds Péretié, was “very excited and supportive” when presented with the idea through a mutual contact. Péretié and Sawiris already knew each other from Péretié’s time as chairman and CEO of Bear Stearns International. Sawiris said in a statement after RiverBank’s launch: “The bank is a great addition to our long-lasting and solid presence in Luxembourg and Europe through various large investments in the European economy and in particular in the financial services sector.”
Sawiris told reporters in Cairo in March that he planned to invest €50 million in the project. He will sit on the bank’s board alongside Péretié and former SocGen deputy CEO and head of the French retail network, Jean-François Sammarcelli.
The RiverBank project has been in gestation for five years, when Péretié became RiverRock’s CEO, joining chairman Roland Berger, founder of the eponymous German consultancy. Péretié will be RiverBank’s chairman and co-founder. He has found a CEO to carry out the day-to-day running of the project: Jean-Laurent Girard, a former managing director in Morgan Stanley’s credit business.
RiverBank aims to reach a balance sheet of between €500 million and €1 billion within three years, with attractively priced corporate deposits adding to the funding mix alongside equity, wholesale borrowing and, in time, securitization. The average core tier-1 equity ratio will be between 18% and 20% – again, far higher than most banks in Europe.
There will be no overlap with RiverRock’s direct lending funds, which do only a handful of deals every year, up to €30 million, with bigger sub-investment grade companies. RiverBank, instead, will take tickets of between €750,000 and €3 million, allowing a more granular balance sheet and a more statistical approach to returns, in contrast to the direct lending funds, which try to avoid loan losses altogether.
The bank envisages a default rate of between 2% and 3%, and will charge interest rates of between 6% and 10%, depending on the risk.
“We will be competitive, but the fact that we are cost-effective doesn’t imply weaker standards in terms of credit analysis,” says Péretié.
The flexibility to offer subordinated funding could attract business sourced from partnerships with other banks in Germany and elsewhere, as well as other lending platforms. The firm also has a 30-strong sales force, which Péretié says is travelling around Europe, speaking to professionals such as auditors, lawyers and consultants who deal with clients that might be looking to fund capital expenditure or acquisitions.
The bank already has a pipeline of 30 deals. “We want to focus on financing growth, on small SMEs,” says Péretié. “This is not something the bigger banks want to focus on as it’s less cost-efficient for them.”