Where next in the battle for central and eastern Europe?
One man, one vision might be a line from a naff Queen song but it neatly encapsulates the role Herbert Stepic has played in building Raiffeisen International into one of the strongest banking franchises in Europe.
It was Stepic, in the late-1980s, who drew up a blueprint for the Austrian bank’s expansion into the neighbouring countries of central and eastern Europe. And it is this strategy that has formed the bedrock of the bank’s success, so much so that its stock is the best performer in the ATX and Dow Jones Euro-Stoxx bank indices. As a result, the bank’s market capitalization has surged to €16 billion from €4 billion in just two years.
Raiffeisen is not alone in reaping rich rewards by growing in central and eastern Europe. Austrian rival Erste Bank, Italy’s UniCredit (both the original Italian bank and the acquired Bank Austria-Creditanstalt), Belgium’s KBC and France’s Société Générale have all benefited greatly from their presence in these growth markets.
The challenge for them and any prospective newcomers to the region is to decide what and where next to buy. Most of the region’s banks are now under foreign ownership, and buying opportunities are limited to a handful of banks in a handful of markets.
Hungary’s OTP is often cited as one potential acquisition candidate but it would not come cheap. Moreover, its chief executive, Sandor Csanyi, is one of the most powerful figures in European banking and has iron-fist control over the bank. So where else should potential predators look?
Russia and the CIS are the obvious markets and recent deals suggest that is where the battle will take place over the next few years.
Last month, for example, KBC agreed to pay up to €761 million to acquire at least 92.5% of Absolut Bank, a second-tier mortgage bank in Russia. The price of the deal, which should be completed in the third quarter, is 3.8 times book value. That looks quite expensive compared with the $550 million Raiffeisen paid for Impexbank in February 2006, especially as Absolut only has 45 branches compared with Impexbank’s 200.
The other European heavyweights are also increasing their presence in Russia. In December, UniCredit increased to 95% its stake in International Moscow Bank, a bank it inherited from HVB.
At the same time the Italian outfit bought Russian broker Aton Capital for $424 million. The Absolut and Aton deals suggest that in these markets the big European banks are as willing to buy niche players as to acquire universal outfits if the opportunity arises.
Raiffeisen, meanwhile, has built the biggest presence of any foreign banking group in Russia and the CIS. Although the Austrian bank already had a small organic presence in Russia, the Impexbank purchase gives it a scale in the retail market unsurpassed by any other western bank. Raiffeisen has made acquisitions in Belarus and Ukraine too; others will probably follow.
The big European institutions are also eyeing opportunities in virgin territories such as Uzbekistan, although the political landscape might be a deterrent for the time being.
With banks such as Raiffeisen, UniCredit and KBC all focused on expanding in eastern Europe, what are the options for the major global banks, such as Citi and HSBC, that have a much smaller presence in the region? Perhaps they have already left it too late. The only quick way they could build market share would be by buying a smaller European rival – or at the very least its central and eastern European portfolio.
At the moment that does not seem realistic. After all, why would a Raiffeisen or Erste sell the very thing that makes it successful? Then again, money talks and if enough is offered, who knows? Stranger things have been known to happen.