Banking's Mediterranean Deal Flurry Widens With Banco Novo Sale

Mint

a day ago

(Bloomberg) -- The wave of bank acquisitions washing over Southern Europe has reached Portugal.
On Friday, Lone Star agreed to sell its 75% stake in the country's fourth-largest lender, Novo Banco SA, to the French banking group BPCE SA in what would be the biggest euro area cross-border takeover in the sector in a decade.
Dealmaking in the region kicked off a little over a year ago in Spain when BBVA SA made an unsolicited offer for domestic rival Banco Sabadell SA. It subsequently spread to Italy as one local bank after the next joined in. Even Greece — once the most chaotic corner of European banking — recently got swept up, with UniCredit SpA expanding its stake in Alpha Bank.
'Years of painful restructuring and reform have left Southern European banks stronger and more profitable,' said Francesco Castelli, a portfolio manager at Banor Capital Limited. 'Now, they're seizing the moment through mergers and acquisitions.'
The buzz across the Mediterranean contrasts with a more subdued outlook north of the Alps. While some lenders have acquired units from competitors such as BNP Paribas SA's purchase of an investment firm from insurer Axa SA and the acquisition of a 49% stake in Banco Santander SA's Polish unit by Austria's Erste Group Bank AG, full-scale M&A has been rare.
Germany's big banks have been notably absent from the M&A frenzy. Even though Deutsche Bank AG has said it wants to play an active role in European banking consolidation once it takes place, it has yet to present any concrete plans.
The country's other big listed lender, Commerzbank AG, has likewise said it's keen to grow through acquisitions, but the few deals it has carried out have been tiny. Instead, it has become a potential takeover target for UniCredit.
Only the Nordic banks have come close to matching the Mediterranean's number of deals, albeit at a much smaller scale. All transactions have been focused on expanding the buyer's presence across Sweden, Finland, Norway and Denmark.
Many banks across Southern Europe have cleaned up their balance sheets over the past decade, removing a huge barrier to their strategic room for maneuver. In addition, steep increases in their share prices over the past few years, fueled by surging lending income on the back of higher interest rates, has given them currency to carry out deals.
Italy is the clearest case in point. The country's banking stocks have enjoyed a revival since interest rates began to rise in 2022. That's set off a cascade of deal announcements, as each bank boss faces the choice to jump into the fray or risk missing out.
The country's big lenders 'are taking advantage of their strong balance sheets and higher equity valuations to take over smaller competitors and extract some synergies,' said Roberto Scholtes, head of strategy at Singular Bank.
Meanwhile, deals in Greece and Portugal have been supported by governments trying to end their shareholdings in banks, which are remnants from bailouts during various financial crises as long as two decades ago.
Both countries have been keen to attract foreign investment into their banking sectors as an effort to show that they have become attractive business cases after years of restructuring.
BPCE's planned acquisition of Novo Banco is 'a very important sign of international investors' confidence in our country,' the Portuguese government said in a statement on Friday. It agreed to sell its 25% stake to the French bank as well.
Most governments elsewhere in Southern Europe have been much less welcoming to the banking deals taking place on their soil. Madrid has voiced strong opposition to BBVA's offer for Sabadell, citing competition concerns — rejected by BBVA — while Rome has imposed sweeping conditions on UniCredit's proposed acquisition of Banco BPM SpA. CEO Andrea Orcel has said he'll pull the offer if the government doesn't soften its stance.
UniCredit has signaled it believes the conditions may violate the law, while BBVA is evaluating whether incoming EU rules will ultimately compel the Spanish government to partially relax its opposition, Bloomberg News has reported.
The European Union and the region's top financial regulator, the European Central Bank, have signaled support for banking deals to happen.
With governments seeking to prevent some of the biggest deals on offer, it's unclear just how deep the current transformation of Southern Europe's banking sector will turn out to be. Failure to complete the takeovers could also send a signal to other bank CEOs that political considerations are too big a risk to take.
For now, the latest batch of deals continues to move through the process.
Mediobanca SpA is set to hold a meeting on Monday to let shareholders to decide whether to proceed with its bid on Banca Generali SpA, the private banking arm of insurer Assicurazioni Generali SpA. UniCredit is waiting to hear from a court in early July about its complaint over Italy's conditions on the Banco BPM bid, while BBVA's offer for Sabadell is being reviewed by the Spanish government. Its decision on that deal is expected soon too.
--With assistance from Macarena Muñoz, Levin Stamm, Evelina Youcefi, Henrique Almeida, Sotiris Nikas and Fion Li.
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