MOSCOW. (Anatoly Gorev for RIA Novosti) - Another mega-deal has been struck on the Russian banking market. The Belgian financial group KBC announced it had bought 92.5% of Absolut-Bank.
The terms are expected to encourage Russian banks thinking of selling some or all of their shares to foreign investors. Early reports say KBC paid just under $1 billion for Absolut, or almost four times as much as the Russian bank's equity.
At first glance, such "going to town" may seem strange. After all, the bank concerned is not among the country's top ten, nor is it strategically positioned on the mortgage or consumer credit market. According to some estimates, on January 1, 2007, the bank's own capital ranked 32nd in Russia, amounting to 7.2 billion rubles ($280 million at an exchange rate of 26 rubles per dollar). In net assets, the bank ranks 25th, with a total of 66.9 billion rubles, or $2.57 billion. These are pretty good financials, but they do not explain why KBC agreed to pay four times its equity, especially when 2006 figures show that the "premium" received by owners for selling their banking assets was usually 2.7-3 times the original capital.
The explanation might be simple: the Belgian group decided not to pinch pennies. It had enough funds to buy not only Absolut-Bank, but also a far larger Russian financial and credit institution. KBC is the second largest financial organization in Belgium, with assets of 325.3 billion euros at the end of 2006. However, it is no secret that European bankers know how to count their money and were unlikely to have bought a Russian bank at such a high premium just because it caught their fancy. At any rate, such behavior is not typical of the steady-going Belgians.
Several factors may be mentioned here to explain the decision. First, the Belgian bank faced a difficult task: entering the Russian banking market with as few losses as possible. That market is a stiffly contested one whose clients - private individuals - are sought out not only by Russian firms, but also by subsidiaries of foreign banks. Starting from scratch would be very wasteful in such a situation. Buying a Russian bank is not cheap either, but it is still more profitable, if only because the newcomer is provided with an established network of branches and a client base created by the local bank over the previous several years.
Second, for some strange but perhaps not accidental reason, KBC entered the Russian market at the same time as its rival, the Belgian bank Dexia. Understandably, they will have to jockey for clients not only between themselves but also with other market players. Moreover, from the image point of view, it is gratifying for it to outclass its usual competitor - and KBC seems to have done so by purchasing a notable, if not very big, bank on the Russian market.
Third, experts say that KBC's decision to pay a very high price for Absolut could have been motivated by talk of an IPO planned by Russia's second largest bank, Vneshtorgbank. This IPO is bound to be a resounding success, market watchers say. Foreign investors' interest in Russian banks may hit record highs after the share issue. The logic is unbeatable: as interest grows, so do the prices of shares in most Russian financial organizations even if their scale of operation and financials are far from Vneshtorgbank's.
So the deal between a Belgian financial group and Absolut-Bank is not an exercise in generosity, but the result of a very pragmatic calculation. If anything, Absolut's former owners are not just pleased, they are very pleased with the sale of their banking business. Also pleased are Russian financial companies that have not ruled out a partial or total sale to strategic foreign investors. Experts think that the premiums paid for Russian banks will grow this year, so a 3.8:1 ratio is unlikely to surprise anyone. This trend towards higher prices for banks will sweep the market, encompassing both financial institutions in the top hundred and smaller banks.
Anatoly Gorev is a financial analyst.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
