Merger remains elusive for HVB despite talks

HVB has held exploratory merger talks with at least four European banks in recent months, according to people at Germany´s third-largest listed bank. ABN Amro, BNP Paribas, Credit Suisse and Santander Central Hispano have all held discussions at a senior level with HVB executives, although interest has abated recently as signs of recovery in the German economy have evaporated.

'This was not an investment bank coming up with an idea and presenting it to the banks. HVB was approached directly,' said one person with knowledge of the meetings. No talks are ongoing.

The discussions are the latest sign of the increasing momentum towards consolidation in the European sector at a time when US rivals such as Citigroup and JP Morgan Chase have been increasing scale through domestic acquisitions.

However, cross-border deals in Europe have so far proved to be elusive, with cultural and regulatory barriers cited as key factors in limiting deals so far to a handful in Scandinavia and the Benelux countries.

Spain´s SCH has also been linked this year to a bid for Abbey National, the UK retail bank viewed as cheap after a foray into wholesale banking led to huge losses and a management shake-up. SCH is understood to have had a bid rejected, but talk of renewed interest has buoyed the UK bank´s shares in recent days.

Analysts have long forecast large-scale mergers or acquisitions involving German banks, which find it difficult to prosper domestically because of chronically low market shares caused by the divide between state-owned banks and mutuals on the one hand and commercial institutions on the other.

For foreign buyers, the German market´s structural inflexibility may be offset by the relative cheapness of the potential deals. HVB´s low market capitalisation of €7.6bn ($9.2bn) masks the potential appeal of its 78 per cent stake in Bank Austria, one of the leading operators in eastern Europe.

Dieter Rampl, HVB´s chief executive, has spent the past six months stressing his interest in a pan-European deal, following the example of Deutsche Bank, which has itself been linked to Credit Suisse and several UK banks, as well as Citigroup.

HVB has meanwhile been distancing itself increasingly from Germany´s Commerzbank, whose overtures it rebuffed early in the year.

Any bolt-on acquisitions for HVB are likely to be focused on Bank Austria´s franchise in eastern Europe. Bank Austria is understood to be prepared to spend up to €2.5bn on eastern European acquisitions.

HVB sees no chance of the hoped-for pan-European M&A deal 'in the short term', according to one banker involved in the project.

Source: The Financial Times

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