Price hampering bank disposals

June 19, 2009

(From Sarah Young at Acquisitions Monthly)

This week has seen policy-makers on both sides of the Atlantic contemplate the future of the banking industry.

Yesterday, Switzerland’s central bank joined the discussion. It is one country that truly knows the meaning of too big to fail – the combined assets of Credit Suisse and UBS were last year equivalent to six times Swiss GDP.

The restructuring and M&A activity that would come about should regulators introduce restrictions on the size of banks, or push for the division of investment and retail banking, must have deal advisers’ eyes watering with the thought of the fees that would be up for grabs.

But enforced disentangling of enormous banking groups seems somewhat improbable, or at least a long way off, so for now advisers will have to content themselves with the prospect of heightened disposal activity by banks.

It’s no secret that banks such as Lloyds Banking Group and RBS will consider selling off assets in the coming years to satisfy the conditions of the UK government’s investment – to boost capital and free up lending capacity – in both institutions.

After taking on HBOS, Lloyds has an enormous range of assets that it could divest. Already in the frame is fund management business Insight, previously part of HBOS.

There’s no doubt that there is, and will in the future continue to be, appetite for the assets banks want to offload. There isn’t a buyout firm in sight that isn’t beefing up its financial services team.

Chinese banks, too, could want to acquire some assets. Buying in specific expertise in the investment banking or private banking space would certainly appeal to them.

Asian appetite for European financial assets was shown last month when Japanese investment bank Daiwa Securities SMBC bought the corporate finance unit of merchant bank Close Brothers.

But this deal and the BGI sale are rare agreements in today’s market. As with other sectors, before a wave of M&A in financial services can kick off, there needs to be some accord on price.

As one sector banker said recently: “Price is the biggest inhibitor. At the moment no-one knows what anything is worth.”

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