Financial institutions M&A: Sector trends - January 2019
We highlight the key European M&A trends in the second half of 2018, and provide our insights into the outlook for M&A in 2019
As 29 March 2019 draws closer, and the possibility of a ’no deal’ Brexit becomes ever more real, many financial services businesses across Europe are contending with operational uncertainty of monumental proportions. The same businesses are also shouldering the growing strain of market fragmentation, digital transformation, disruptive financial regulation, large-scale IT meltdowns and cybersecurity attacks.
Notwithstanding these pressures, many financial institutions have hardened their resolve that ‘the show must go on’.
2018 has been a transformational year for fintech M&A. Deal values and volumes have reached new heights as established financial institutions pin hopes on well‑placed bets to deliver competitive edge and market share. VC and late‑stage investment firms are also actively stoking the fintech fire.
Payment services M&A retains its spark on the financial services landscape. Stock exchanges poise for strategically significant deals. And, brokers resort to M&A to combat the impact of disruptive regulation.
Seeking scale, scope and new technology to defend/increase market share:
Fierce competition across the lending landscape from growing "challenger" bank offerings
Availability of seed and growth capital boosting the number of "challenger" banks
Mounting activist pressures, aimed at re-focusing core activities and improving shareholder returns
Increasing agitation of supranational and domestic regulators for banks to find workable solutions for Europe's NPL conundrum
Wide universe of potential buyers for non-core businesses and financial assets, including financial sponsors, non-European strategic investors, ultra-high-net-worth individuals and tech conglomerates
US inbound investment into Europe—raising of the SIFI threshold from US$50 billion to US$250 billion and easing of restrictive US bank regulation
Trends to watch
Additional rigour in the quest to become the pan-European champion—possibility of mega-deals
End of the decade-long dormancy—re-emergence of cross-border strategic M&A
Wall Street behemoths flexing expansion muscles (e.g., Goldman Sachs's Marcus)
Established banks challenging the digital "challengers" (e.g., RBS's Mettle and Bó)
Impact of M&A on IT system robustness (e.g., TSB Bank's IT outage as it attempted to sever legacy dependences on Lloyds, BoE's new "cyber stress tests", etc.)
Our M&A forecast
Strong growth in M&A activity as regional and domestic banks consolidate to combat competition and return to profitability, with the support of governments and regulators. Banks with stronger balance sheets are ready to grow again, and the ambitious will vie for prime pan-European coverage.
Bank consolidation hotspots
Cross-border bank mergers promise eye-catching expansion opportunities and operational synergies, but are notoriously tricky to successfully implement.
"Digital 'challengers', including the likes of Klarna, Holvi and Lunar Way, are forcing established incumbents to re-focus their strategies to retain market share and compete for control of the customer experience."
—Darragh Byrne, Partner, Stockholm/Frankfurt
"Market consolidation is not an exclusively European phenomenon. Fragmented markets across the Middle East have forced local rumour mills into overdrive as domestic players pursue merger opportunities."
—Marcus Booth, Partner, Dubai/London
"Poland, Serbia, Albania and Bulgaria are just some of the countries which have experienced significant financial sponsor and domestic strategic investor- led consolidation activity in the last 6 months. That activity is likely to intensify as the quest to become the regional champion continues."
—Jan Andruško, Partner, Prague
6 Things to think about when considering a bank merger
Having advised on a number of market-leading and complex bank consolidations in recent years, here are 6 things we encourage our clients to consider:
What is stakeholder appetite for the merger? Is it possible to lock in support early from key stakeholders?
How will each merging bank be valued?
How will the merger be structured from a legal/mechanical perspective?
Are there any parts of the merging banks which would be excluded from the consolidation?
What is the proposed timeline for the merger?
How would the proposed timeline be impacted by mandatory CPs?
3. Transaction management
Are all directors aware of their legal/regulatory obligations?
Are any key stakeholders independently advised?
Are any share-dealing restrictions triggered?
Are any public announcement obligations triggered?
What is the plan for and proposed scope of due diligence? Are there any information restrictions triggered?
4. Integration planning—perhaps the most important aspect
What preparation has gone into integration planning?
Have the right specialist advisers been engaged?
Key integration considerations include post-merger governance framework, regulatory capital structure & planning, compliance systems & controls and communications plans covering employees, customers, key business counterparts and suppliers
5. Transaction certainty
What financial regulatory approval/notification requirements would be triggered?
What is the proposed process for testing the merger with relevant regulators ahead of implementation?
Which of the merging banks will be responsible for securing relevant financial regulatory consents?
Are any local/regional antitrust or other state notifications/approvals triggered?
Are any other material shareholder/third-party consents required?
6. Regulatory matters
Each merging bank will be particularly focussed on regulatory due diligence on the other, particularly around:
Scope of financial licences/permits required by the merged bank to operate the businesses of each merging bank
Existing regulatory and compliance strengths and weaknesses of the other merging bank
The impact of any upcoming regulatory changes on the other merging bank's business model
The preparedness of the other merging bank to comply with any new regulatory regimes
Deal timetables are often extended due to interaction with financial services regulators. Key contributing factors include:
Parties taking longer to complete their due diligence, since regulatory diligence is as much about the future as it is about the past
Regulators' increased scrutiny of forward-looking business plans and the effect the merger will have on the merging banks' customers as well as the stability of the local financial services market more generally
Regulators requiring changes to post- merger governance arrangements
Banks—Publicly reported deals & situations
25 banks were reported to be in "well-advanced" talks with the European Central Bank to secure EU banking licences as of November 2018*
Brexit planning (outbound):
Barclays: Migration of £200 billion of European assets from UK to Dublin and double Irish employee headcount (December 2018)
RBS: Application for German banking license and migration of £6 billion of balance-sheet assets and £7 billion of liabilities from UK to Dutch subsidiary NatWest Markets (December 2018)
Bank of America Merrill Lynch: Merger of London banking unit into Irish subsidiary (December 2018)
J.P. Morgan: Migration of US$283 billion balance-sheet assets from UK to Frankfurt and growth of Frankfurt subsidiary (November 2018)
Lloyds Bank: Establishment of life insurance operating subsidiary in Luxembourg (September 2018)
Deutsche Bank: Shift of US$351 billion from UK to Frankfurt and establishment of UK branch (September 2018)
J.P. Morgan: Migration of commercial banking to Luxembourg and merging of its European wealth management business with Luxembourg office (September 2018)
Brexit planning (inbound):
ABN AMRO: Application for UK banking licence and establishment of new UK clearing subsidiary (November 2018)
Handelsbanken: Successful grant for UK banking licence (November 2018)
Citigroup: Establishment of Citibank UK to service Citigold and other UK consumer clients (October 2018)
Nordea: Cross-border reverse merger to move its HQ from Stockholm to Helsinki (October 2018)
Santander: Transfer of £22.9 billion and £20.7 billion of assets and liabilities, respectively, from UK to Madrid to comply with UK ring- fencing rules (September 2018)
Intesa Sanpaolo: Mergers with IMI Investimenti and Banco di Napoli (July 2018)
Getin Noble Bank: Merger with BPI Bank Polskich Inwestycji (June 2018)
Disposals of non-core assets
Société Générale: Disposals of 35% of La Banque Postale Financement, Société Générale Srbija, 2.05% of Euroclear, majority stake in Société Générale Expressbank, majority stake in Banka Société Générale Albania and its Belgian private banking unit (July – December 2018)
CaixaBank: Disposal of Servihabitat business and 80% of real estate assets (December 2018)
Danske Bank: Disposal of Danica Pension (December 2018)
Nordea: Disposal of Nordea Ejendomme (November 2018)
Nordea and DNB: Disposal of 60% of Luminor Bank (September 2018)
Standard Chartered: Disposal of principal finance investment business (August 2018)
Schroders: Disposal of its Eastern European banking business (July 2018)
Banco do Brasil: Disposal of stake in Mapfre BB SH2 Participaçoes (June 2018)
Deutsche Bank: Disposal of Deutsche Bank Alternative Fund Services (June 2018)
States go the extra mile for state-aided banks:
Cyprus Cooperative Bank: European Commission provided state aid of €3.5 billion to Cyprus Cooperative Bank, including counter-guarantees and an asset protection scheme to Hellenic Bank, in connection with Hellenic Bank's acquisition of certain assets from Cyprus Cooperative Bank (June 2018)
Bankia: Disposal of 51% stakes in Caja Granada Vida de Seguros y Reaseguros and Cajamurcia Vida y Pensiones de Seguros y Reaseguros (December 2018)
Banco BPM: Disposal of Profamily (December 2018)
Piraeus Bank: Disposals of Piraeus Bank Bulgaria, Tirana Bank and Piraeus Bank Romania (June – November 2018)
Banca Monte dei Paschi di Siena: Disposal of Banca Monte Paschi Belgio (October 2018)
National Bank of Greece: Disposal of 99.83% of South African Bank of Athens and NBG Albania (July – October 2018)
Bank of Cyprus: Disposal of Bank of Cyprus UK (July 2018)
White & Case advised the four systemically important Greek banks—Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank—on their entry into an innovative and groundbreaking NPL servicing agreement with Italian credit institution doBank
White & Case advised Piraeus Bank on the sale and transfer of a €2.238 billion portfolio of non-performing, denounced unsecured retail consumer and credit card exposures to APS Investments
Non-state-aided bank disposals:
Bank Norwegian: Disposal of €160 million of Finnish credit card and personal loans (October 2018)
Bankinter: Disposal of €362.2 million of NPLs (August 2018)
KBC Bank Ireland: Disposal of €1.9 billion of buy-to-let mortgage loans (August 2018)
Banco Sabadell: Disposal of €3.9 billion of real estate loan portfolio (July 2018)
UniCredit: Disposals of €537 million and €124 million of NPLs (June – July 2018)
Crédit Agricole: Disposal of €450 million of unlikely-to-pay loan portfolio (June 2018)
Deutsche Bank: Disposal of US$1 billion ship NPLs (June 2018)
State-sided bank disposals:
Bank of Cyprus: Disposal of €2.80 billion of NPLs (August 2018)
Ulster Bank: Disposal of €1.4 billion of NPLs (August 2018)
Nova Kreditna Banka Maribor: Disposal of first-lien corporate debt and loan portfolio (August 2018)
Monte dei Paschi: Disposal of US$160 million of NPLs (August 2018)
Permanent TSB: Disposal of €2.1 billion of NPLs (July 2018)
Piraeus Bank: Disposal of €385 million of NPLs (June 2018)
National Bank of Greece: Disposal of €2 billion of NPLs (June 2018)
White & Case advised BC Partners and Louvre Bidco on the combination of the MCS group and the DSO group, both active in the French credit management space
Outsources debt servicing:
Piraeus, Alpha Bank, Eurobank and National Bank of Greece: Servicing of €150 million of NPLs by KKR's Notos Com Holdings (July 2018)
Availability of third-party service providers:
MCS-DSO: Acquisition of Serfin (November 2018)
Hoist Finance: Acquisition of Maran (October 2018)
DSO Group & MCS Groupe: Merger (October 2018)
SANNE Group: Acquisition of AgenSynd (September 2018)
Strong financial sponsor interest:
Axactor: Acquisition of €160 million of Finnish credit card and personal loans from Bank Norwegian (October 2018)
Apollo: Acquisition of €2.80 billion of mortgage NPLs from Bank of Cyprus (August 2018)
Goldman Sachs: Acquisition of €1.9 billion of buy‑to-let mortgage loans from KBC Bank Ireland (August 2018)
Cerberus: Acquisition of €1.4 billion of NPLs from Ulster Bank (August 2018)
Arrow Global: Acquisition of €362.2 million of NPLs from Bankinter(August 2018)
AnaCap Financial Partners: Acquisition of first-lien corporate debt and loan portfolio from Nova Kreditna Banka Maribor (August 2018)
SC Lowy: Acquisition of US$160 million of NPLs from Monte dei Paschi (August 2018)
Lone Star: Acquisition of €2.1 billion of NPLs from Permanent TSB (July 2018)
APS: Acquisition of €385 million unsecured consumer NPLs from Piraeus Bank (June 2018)
CarVal Investors and Intrum: Acquisition of €2 billion consumer and SME NPLs from National Bank of Greece (June 2018)
Oak Hill Advisors and Värde Partners: Acquisition of US$1 billion ship NPLs from Deutsche Bank (June 2018)
Transfers to independent securitisation vehicles:
Unione di Banche Italiane: Transfer of €2.75 billion of NPLs to Maior SPV (August 2018)
MONETA Money Bank (Czech Republic/CEE): Acquisition of Air Bank and Home Credit Czech Republic and Slovakia (October 2018)
CYBG (UK): Acquisition of Virgin Money Holdings (October 2018)
Iccrea Banca (Italy): Establishment of new banking group for smaller Italian banks (July 2018)
CaixaBank (Portugal): Acquisition of remaining 5% of Banco BPI (December 2018)
Sparebank 1 SMN (Norway): Acquisition of DeBank (December 2018)
OTP Bank (Serbia/CEE): Acquisition of Société Générale Srbija (December 2018)
Unipol Gruppo (Italy): Acquisition of 15% of BPER Banca (August 2018)
Komercijalna Banka (Balkans): Consortium (with Balfin) acquisition of Tirana Bank (August 2018)
Halyk Savings Bank & Kazkommertsbank (Kazakhstan): Merger (July 2018)
TBC Bank & Nikoil Bank (Azerbaijan): Merger (July 2018)
Hellenic Bank (Cyprus): Acquisition of Cyprus Cooperative Bank (July 2018)
Banco CTT (Portugal): Acquisition of 321 Credito (July 2018)
Deutsche Bank Polska (Poland): Demerger involving Bank Zachodni (July 2018)
American Bank of Investments (Balkans): Acquisition of NBG Albania (July 2018)
Hrvatska poštanska banka (Croatia): Acquisition of Jadranska banka (July 2018)
Alfa Bank (Belarus/CEE): Acquisition of majority stake of Home Credit Belarus (June 2018)
Nordax Bank (Sweden): Acquisition of Svensk Hypotekspension (June 2018)
Strategic M&A—signs of cross-border deals staging a comeback
Swissquote Bank: Acquisition of Internaxx Bank (August 2018)
ABN AMRO: Acquisition of Société Générale's Belgian private banking unit (July 2018)
Crédit Agricole: Acquisition of 5% of Credito Valtellinese (July 2018)
Investbank: Acquisition of Victoria Commercial Bank (July 2018)
Société Générale: Acquisition of Commerzbank's Equity, Markets and Commodities business (July 2018)
Erste Group: Acquisition of 6.29% of Banca Comercială Română (June 2018)
Please refer to the 'Fintech' report in this series.
Wide buyer universe
Lone Star: Acquisition of CaixaBank's Servihabitat business and 80% of its real estate assets (December 2018)
J.C. Flowers and Cerberus: Acquisition of HSH Nordbank (November 2018)
Cynergy Capital: Acquisition of Bank of Cyprus UK (November 2018)
AlpInvest Partners, LGT Capital Partners, Five Arrows and Bregal Capital: Acquisition of interests in ABN AMRO Participaties (November 2018)
Warburg Pincus: Acquisition of Banca Monte Paschi Belgio (October 2018)
Atlas Merchant Capital: €100 million investment in Praxia Bank (October 2018)
Invalda and Horizon Capital: Consortium acquisition (together with EBRD) of Agroindbank (October 2018)
Värde Partners: £60 million equity investment in Masthaven (September 2018)
Blackstone: Acquisition of 60% of Luminor Bank from Nordea and DNB (September 2018)
PPF Group: Acquisition of Telenor Banka (August 2018)
Actis: Acquisition of Standard Chartered Bank's Asian principal finance unit (August 2018)
J.C. Flowers and EBRD: Acquisition of Piraeus Bank Romania (July 2018)
Capitec Bank: Acquisition of Mercantile Bank Holdings (November 2018)
Convoy Global: Acquisition of minority stake in Tandem Bank (November 2018)
Stifel: Acquisition of Mainfirst Bank (November 2018)
GroCapital Holdings: Acquisition of 99.83% of South African Bank of Athens (October 2018)
REYL & Cie: Acquisition of Öhman Bank S.A. Luxembourg (September 2018)
Geely Holding Group: Acquisition of 51.5% of Saxo Bank (September 2018)
Vardis Vardinogiannis: Acquisition by Motor Oil (Hellas) Corinth Refineries of majority stake in Investment Bank of Greece (November 2018)
Oleg Karchev: JSC Bank Realist–BaikalInvestBank JSC merger (September 2018)
Adrian and Andreas Keller: Acquisition of 80.1% of Berenberg Bank (September 2018)
Andrey Shlyakhovoy: Acquisition of VTB Banka Beograd (July 2018)
Amazon, Google and other Big Tech companies could compete with banks for the sale of even basic retail products**
Zopa, the 13-year-old peer-to-peer lender, has become the first of its kind to be awarded a full UK banking licence. The UK regulator's decision to grant the licence marks the first major breakthrough by a P2P lender into mainstream banking***
Arkea Group: Acquisition of net-m privatbank 1891 (December2018)
Starling Bank: "High street" branch distribution JV with UK Post Office (November 2018)
Monzo: Launch of SME lending products and successful £85 million Series E funding round, led by General Catalyst and Accel (October 2018)
Qonto: Successful €20 million Series B funding round, led by Valar, Alven Capital and European Investment Bank Group (September 2018)
Monese: Successful US$60 million Series B funding round, led by Kinnevik (September 2018)
Acorn OakNorth: Successful US$100 million funding round to enable licencing of AI loan system to other banks (September 2018)
Virgin Money: Lifetime mortgage JV (August 2018)
RBS cashpool: Allocation of £775 million to boost UK's SME banking sector to be awarded in February 2019 (July 2018)
Revolut: Successful grants of Lithuanian banking licence, Singaporean remittance licence and Japanese financial services authorisation as well as launch of open-banking enterprise marketplace for business banking customers (June – December 2018)
Zopa: Successful grant for UK banking licence (December 2018)
FinTech Group: Austrian banking JV with Österreichische Post Aktiengesellschaft (September 2018)
Klarna Bank: Acquisition of Close Brothers Retail Finance unit (September 2018)
Emirates NBD: Launch of DirectRemit services to the UK (August 2018)
Solarisbank: Launch of business loan offering (August 2018)
Tencent: Launch by N26 of UK online bank offering (October 2018)
Incumbents strike back against the "challengers"
RBS: Launch of Mettle (RBS's standalone digital SME‑focused bank) and Bó (RBS's standalone digital consumer bank) (September – November 2018)
Barclays: Launch of US online-only checking account offering (October 2018)
Goldman Sachs: Launch of Marcus, Goldman Sachs's UK digital consumer savings platform (August 2018)
Rise of the activist investor
Advisers bulking up:
PJT Partners: Acquisition of CamberView Partners (August 2018)
Nordea/Cevian: Pressure to address revenue development decisions (November 2018)
Barclays/Sherborne Investors: Pressure to make key governance changes and downsize Barclays' investment bank (July – November 2018)
Deutsche Bank/Hudson Executive: Acquisition of 3.1% of Deutsche Bank to encourage traditional retail banking in Germany (November 2018)
Credito Fondiario/Elliott: Pressure to increase profitability (August 2018)
Citigroup/ValueAct: Acquisition of US$1.7 billion of equity and pressure to increase shareholder revenue (August 2018)
Mediobanca/Elliott: Pressure to spin off of Mediobanca's 13.2% stake in Generali (August 2018)
Novo Banco/Elliott and Aurelius: Pressure on Novo Banco's Tier 2 bond issuance (July 2018)
UniCredit/Caius: Pressure to convert €3 billion of UniCredit's complex instruments into common equity (June 2018)
KBC Bank Ireland: Launch of new open banking offering through the KBC app (November 2018)
Barclays: Launch of account aggregation feature on Barclays' mobile banking app (September 2018)
CYBG: Launch of open banking offering with ID Co. (August 2018)
Deposit Solutions: Successful US$100 million funding round (August 2018)
Société Générale: Crédit du Nord is the first French bank to offer open banking (July 2018)
UK FCA and UK CMA: Financial comparison rules require banks to publish additional product information, thereby enabling customers to compare providers' account offerings (August 2018)