Are Chinese investors smart enough to call the bottom in Portugal’s economic cycle?
The two frontrunners to buy Novo Banco, the good bank carved out of the ill-fated Banco Espirito Santo, are Chinese companies Fosun and Anbang Insurance.
Any acquisition would be valued at about €4bn and would be the latest episode in a large flow of Chinese inward investment into Europe in general, and Portugal in particular. To succeed in their bids, the Chinese investors would need to outbid more traditional contenders such as Spain’s Santander and US private equity groups Cerberus and Apollo Global Management.
There is an obvious logic in Chinese overseas investment in that China’s economy is slowing, its companies are cash rich and the country suffers from over rather than under investment.
But Europe is still tricky investment territory with an unresolved eurozone crisis and the prospect of a Grexit still very much a reality. Portugal’s economy is recovering but remains fragile and could easily stall in the advent of difficulties elsewhere in the eurozone.
Then there are the particular challenges of European banking such as regulation and the working out of bad loans, complicated in Portugal by an ongoing consolidation process with numerous scenarios.
Surely Santander, with its existing and consistently profitable operation in Portugal – Santander Totta – would be a better fit. There would be excellent opportunities for rebranding and cost reduction that are not available to Fosun. Having bought Portugal’s largest insurance group, Caixa Seguros, in 2014 Fosun could arguably cross-sell products but bancassurance as a concept has a rather uneven track record.
For sure there is scope for major Chinese investments in overseas banks, both in Europe and elsewhere – the best example being ICBC’s 20% stake in Standard Bank made in 2007. Here the logic is China-Africa trade flows and Europe-China flows – sometimes dubbed the New Silk Road – can likewise produce workable merger and acquisition deals or strategic alliances.
But major bank working with major bank would seem a better idea than the conglomerate approach – Fosun also has investments in holiday firm Club Med and entertainment company Cirque de Soleil.
US and European banks have found out the hard way that only a very focused strategy works in buying overseas assets and many groups are currently disposing of past purchases invariably at a loss.
Brian Caplen is the editor of The Banker.
