Article 16 was originally designed to safeguard the stability of national financial systems in mergers and acquisitions with banks from other EU member states. In practice, however, it gives national supervisors too much room to veto a foreign takeover – as happened recently in Italy when central bank governor Antonio Fazio helped a local bank to beat ABN Amro in its bid for another Italian bank, although the Dutch bank was ultimately successful.
The EC’s initiative, which follows an ongoing review process and will mean a full amendment of the directive, is also a response to a November report by the internal market commissioner, Charlie McCreevy, on obstacles to cross-border consolidation in the EU banking industry. It concluded that integration of the EU financial services market is weaker than in other sectors. Cross-border acquisitions in the financial sector accounted for 20% of the total value of deals between 1999 and 2004, compared with 45% in other sectors.
Supervisory divergences, the legal structure of some credit institutions and additional VAT bills have been identified by banks as the main obstacles to cross-border deals. The banks hope that the summer 2006 amendment to article 16 might help to bolster the momentum for change on some of these issues.
Guido Ravoet, secretary-general of the European Banking Federation (FBE), told The Banker: “We are satisfied globally with the report, but this is just the first step towards a fully integrated financial services market. Supervising reporting requirements are a major obstacle because they prevent banks from realising big cost synergies.” This is because they make it more difficult for a cross-border group to unify some of its back-office operations.
Some credit institutions’ legal structures are also a deterrent. Mr Ravoet pointed out: “In some countries, like Germany and Spain, savings banks are protected by law and cannot be acquired by banks.”
A third area where banks see room for improvement is VAT. A cross-border transaction brings cost synergies of about 15%, but internal costs that are externalised come back with a VAT of about 20% attached to it, wiping out the savings arising from the merger. Mr Ravoet said that the tax and customs commissioner, Lazslo Kovacs, had given a positive response to the FBE regarding this.
Likewise, different tax regimes make it inefficient to sell the same product in different countries, which also eliminates synergies, but this may be more difficult to change because the harmonisation of taxes in the EU is a controversial issue.
BOOST FOR MICROFINANCE
Global Commercial Microfinance Consortium, the recently launched and largest-ever microfinance loan fund, will distribute $75m to microfinance institutions that provide financial services to poor people. Several investors participate in the fund, including the Co-operative Bank with a $5m investment, private investors, charitable foundations and development agencies from the US, France and the UK. The consortium will initially finance operations in India, Pakistan, Colombia, Nicaragua, Peru, Mozambique, Kosovo and Azerbaijan.
The following 10 foreign banks have been licensed to operate in Saudi Arabia. Although some are already operational the announcement in mid-November follows the admittance of Saudi Arabia as the 149th member of the World Trade Organization on November 11. The foreign banks are: BNP Paribas, JPMorgan, Deutsche Bank, National Bank of Kuwait, National Bank of Bahrain, Emirates Bank, Gulf International Bank, State Bank of India, National Bank of Pakistan and BankMuscat.
ARGENTINE ACQUISITION:
HSBC announced the acquisition of the Argentine subsidiary of Italian bank Banca Nazionale del Lavoro for $140m. It will be the first time that an international banking group has bought a bank in Argentina since the 2002 crisis.
Bank Leumi moved closer to full private ownership this month with the Israeli government’s sale of 9.9% of the bank to Gabriel Capital and Cereberus Capital Management.
Raiffeisenbank Austria, Moscow, the Russian subsidiary of Raiffeisen International, has opened a regional branch in Novosibirsk, making it the first western universal bank with a branch presence in Siberia. It is the declared strategy of Raiffeisenbank to expand further in Moscow and St Petersburg as well as into the larger regional centres. In the next 12 months, Raiffeisenbank plans to open more than 20 new branches. These openings are part of a massive branch network expansion programme to make better use of the market potential in Russia. Further openings are planned for 2006 in Nizhny Novgorod, Krasnoyarsk, Perm and Chelyabinsk.
COMMERZBANK WINS OUT:
Germany’s Commerzbank has fully – and, for some, controversially – acquired Eurohypo, the country’s largest real estate bank, buying the shareholdings held by its peers Deutsche Bank and Dresdner Bank.
To finance the €4.5bn acquisition, Commerzbank issued new shares and a hybrid bond and also sold several shareholdings. In acquiring Eurohypo, Commerzbank thwarted a hostile bid for the bank on the part of Hypo Real Estate. The deal makes Commerzbank the second-largest German private bank after Deutsche.
