As the world economic power continues to shift from the West to the East combined with distressed prices and sales in Europe, we will see increased M&A activity within the EMEA financial sector; Asian players, which largely escaped the economic difficulties of the West, are expected to make aggressive moves into the weakened European market.
It is clear Asian companies looking for a foothold in Europe will seize upon an opportunity where Western European companies especially are experiencing a moment of weakness. Some of the world's biggest banks may come from the large Eastern markets, in particular China, and perhaps in time institutions from those markets will seek increased exposure and access to the economies of Europe, and seek acquisition targets.
A recent example of an Asian company zoning in on an European counterpart is that of listed Japan-based insurance company NKSJ Holdings acquiring 93.36% of Turkey-based non-life insurance company Fiba Sigorta Anonim Sirketi for USD 308M. Fiiba had interest from European bidders, but none were able to match NKSJ’s price, which was 60% higher than its nearest European offer. If Asian players really believe in buying an European asset, they will buy it. And given the financial clout many of them have above many rivals, it is often likely to win.
Deals are also being driven by banks selling assets to pay back state loans. Allied Irish Bank, Bank of Ireland, ING, KBC, Lloyds and RBS are undergoing large asset sales to pay back the state, and many of these deals will reach completion by the year-end. RBS’ multi-billion pound sale of its Worldpay unit and its William & Glyn-branded branches, for example, are anticipated to be finalized before 2011.
As the economic climate remains shaky, many other deals are expected to be delayed until conditions improve. KBC Group’s private equity division, which failed to attract the deal value from investors it had hoped, has been put on hold. Lloyds Group has also put back the sale of its 600 branch network until next year, while others such as RBS have forged ahead with equivalent sales.
Some of the sell-offs are arguably important to the reshaping of the financial sector so a slowing of the process may have wider effects. The UK, for example, has started the readdressing and reshaping of its financial hub through the introduction of the Independent Banking Commission, which in essence could look into separating institutional banks from their retail banks. If this model is decided upon, it is likely to spur further disposals among the banking community.
One such situation that could potentially come into play over the coming months is Prudential after the insurer’s failed USD 35bn approach for AIA. This could generate a break-up of either or both insurance giants, leading predatory peers to cherry pick parts of the respective firms.
Regulatory changes in the financial field could also be large catalysts of future activity. Insurance’s Solvency II, due to be implicated in 2012, revisions to Basel III, set for later this year and a review of the Markets in Financial Instruments Directive will all have consequences on the banking community, insurance sector and financial trading houses across Europe, which could again lead to a flow of consolidation.