(Bloomberg) — The deals came in rapid succession.
One week after UniCredit SpA announced a takeover that will make it the third-largest lender in Romania, rival Intesa Sanpaolo SpA agreed on a transaction to double its size in the country. A third Romanian lender has attracted offers from at least two bidders, with a decision expected as early as this year.
The transactions aren’t huge — less than €1 billion combined — but they spotlight how, at a time when executives lament the lack of bank consolidation in Europe, deals are still being done in the bloc’s east. Flush with excess profits from rising interest rates, some of Europe’s largest lenders are betting that faster economic growth and generally higher rates in the region will shield them when their home markets start to decline again.
Their expansion strategy pits Italy’s top banks, where profits have surged on the back of higher interest rates, against competitors such as Societe Generale SA, which is reviewing its presence in several countries as it shores up capital following a series of missteps. Austria’s Raiffeisen Bank International AG, another lender that’s been traditionally strong in Europe’s east, has struggled since sanctions imposed against Russia left its most profitable unit in limbo.
One country where the battle for regional dominance is playing out is Romania, the second-biggest eastern European economy. UniCredit last month agreed to buy the Romanian unit of Alpha Bank, along with a stake in the Greek lender, putting it on track to surpass SocGen as the third largest bank in the $300 billion economy.
A week later, Intesa agreed to take over Romania’s First Bank from its private equity owner JC Flowers & Co. It paid about €130 million for First Bank, below its book value, according to people with knowledge of the matter, who asked not to be identified discussing confidential information.
Both lenders have said they see opportunities for smaller deals in central and eastern European countries where they already have operations. UniCredit, Italy’s No 2 bank, has a presence in 13 European countries and is one of the largest players in the east. Chief Executive Officer Andrea Orcel has been scouting for acquisitions and sees opportunities in countries including the Czech Republic, Romania, Slovakia and Serbia.
In Poland, the region’s largest economy, deals are also coming to the market just as opposition leader Donald Tusk prepares to take over the country’s premiership and restore relations with the EU. Bank Handlowy SA, a Polish unit of Citigroup Inc, is preparing to divest its local retail assets, while the country’s state regulator Bank Guarantee Fund BFG is selling VeloBank SA, Poland’s 10th biggest lender by assets.
Romania in particular is attractive because loans to retail clients in the country are still relatively small compared to the size of the economy, implying “scope for material growth for banks,” said Bloomberg Intelligence analyst Tomasz Noetzel. However, “securing a top three spot in terms of market share may prove critical to deliver satisfying profitability.”
Central and eastern Europe has been viewed as a growth region by western European lenders since the collapse of the Soviet Union more than three decades ago, but their expansion hasn’t been without risks. Governments from Poland to Slovakia and Hungary have previously slapped taxes on banks with outsized market positions to fill budget gaps, or forced them to bear the cost of cleaning up the mess from ballooning Swiss franc-denominated mortgages.
In Hungary, the populist government of Viktor Orban is pushing to create national champions across the economy, including in banking. In 2020, state-owned Budapest Bank joined two other lenders led by Orban’s business allies to become the second-largest bank after OTP Bank Nyrt.
Apart from the Italians, Austria’s lenders have played a key role in bank consolidation in central and eastern Europe. They also dominated the Romanian sector for decades, until a shopping spree by a local national champion, Banca Transilvania SA propelled the lender founded by local entrepreneurs to the top of the rankings.
Now Raiffeisen is competing with Banca Transilvania for the Romanian unit of OTP Bank , people familiar with the matter have said. The business could fetch about $400 million, according to Hai Thanh Le Phuong, an analyst at Hungarian brokerage Concorde.
The flurry of Romanian deals is reminiscent of the years before the 2008 financial crisis, when Austrian lender Erste Group Bank AG paid €3.8 billion for Romania’s largest bank at the time, Banca Comerciala Romana SA, almost six times book value. Erste’s local arm now ranks second in Romania by assets.
Raiffeisen, based in Vienna, has seen its shares slump since Russia’s invasion of Ukraine, as it struggles to find a solution for its Russian business. Plans for a sale or spin-off have stalled due to regulatory difficulties, CEO Johann Strobl said in August. Raiffeisen is unable to send earnings back to Austria from its unit in Moscow, which has accumulated more than €3 billion in retained profit.
SocGen, too, has been hit by its exit from Russia, which cost the bank €3.3 billion in profit before taxes and caused it to miss it pledge for investor payouts. CEO Slawomir Krupa is now reviewing the lender’s presence in several countries.
“In Romania, a low loan penetration is ample reason for a favorable growth outlook for banks, but only above a certain size,” said Attila Gyurcsik, CEO at Accorde Fund Management in Budapest. “New entrants who are below that size are struggling.”
–With assistance from Andra Timu, Marton Kasnyik, Sonia Sirletti, Piotr Skolimowski and Piotr Bujnicki.
(Adds details on Hungary’s push for national champions in 11th paragraph.)
©2023 Bloomberg L.P.