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Russian banks come with high price tag

The market is attractive to potential foreign acquirers, but the process of acquisition is proving far from easy. Patrick Gill reports.

RUSSIA’S RETAIL BOOM means that banks offering consumer finance services are posting impressive growth. This is attracting intensifying interest from foreign suitors. Although many domestic banks are keen to bring in foreign know-how and raise their capitalization, few shareholders want to relinquish control, as further upside is expected over the next few years. The dearth of available banks means that in turn valuations have been pushed up as controlling shareholders put a premium on their holdings. Foreign banks keen to tap into the lucrative retail finance market by buying a local player might therefore have limited acquisition options until at least the medium term, bankers say.

Although some foreign banks have already made acquisitions, cross-border M&A has been muted. Until Raiffeisen’s $550 million purchase of Impexbank in early 2006, the Austrian bank and the other leading foreign retail player, Citibank, had rolled out greenfield networks. But the Impexbank deal, the largest cross-border banking acquisition to date, was seen as a benchmark transaction that could spur RZB’s competitors to speed up their acquisition activity.

Citibank said in December 2005 that it had no plans to deviate from its organic growth strategy. However, numerous other banks are competing for acquisitions in Russia to get access to an established network from which they can build their operations.

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