KOMMERSANT. Largest Spanish banking group Santander has sold its Russian business assets, Kommersant business daily wrote Friday. Orient Express Bank, whose co-owner is Igor Kim, acquired 100% of Santander Consumer Bank. At present, Orient Express Bank is discussing a model of taking over the newly bought asset, the bank’s co-owner Sergey Vlasov told the paper. The parties do not disclose the transaction price. “This deal was hardly transacted at a high multiple. The portion of equity capital in the bank’s assets is around a third, therefore the transaction price could be 1.5x of its equity capital at largest," Otkritie Financial Corporation Olga Naidenova says. Interfax-CEA general director Mikhail Matovnikov shares this estimate.
Santander’s transaction with Orient Express Bank is a benchmark event for the market. Experts do not remember cases when a large European player sold its assets in Russia. In this case, the example of Morgan Stanley that sold City Mortgage Bank to Orient Express Bank is not illustrative, as mortgage lending was not a core activity for Morgan Stanley.
For the record, Santander broke onto the Russian market in 2006 by buying a small bank (Extrobank), which was later renamed. In Russia the bank focuses on auto lending, as this area is of priority in the global bank’s business structure. However, because of the crisis the bank had to put expansion plans on hold. “Until signs of recovery appear on the market the lending institution intends to focus on servicing its credit portfolio," Santander Consumer Bank marketing director Roman Cherevach specified at that time. Since the beginning of 2010 assets held by Santander Consumer Bank, as RAS financial statements showed, have slid 43% to Rub 4 bln as of October 1.
Yesterday neither Russia-based Santander Consumer Bank nor the parent group, Grupo Santander, was able to provide comments to the paper.
Orient Express Bank has been pursuing an aggressive M&A policy, Kommersant noted. For the record, this year Orient Express Bank took over Rostpromstroybank and Kamabank, and announced the acquisition of City Mortgage Bank from Morgan Stanley in summer. Recently Baring Vostok Private Equity Fund IV bought into Orient Express Bank. Upon completion of the transaction Baring Vostok’s interest will equal 30%.
According to Vlasov, the purchase of Santander Consumer Bank will reinforce Orient Express Bank’s positions on the auto lending market.
The main reason that encouraged foreign banks to enter the Russian market before the crisis was expectations of their fast expansion. “However, it is evident that the Russian banking system will reach pre-crisis retail lending volumes not soon," Evgeny Trusov, NEO Center’s project manager of the department of consulting and support of acquisition and sale procedures for banks, said adding in some cases it is much profitable to sell inefficient assets than to keep them.
Because of the crisis a number of foreign banks reduced operations on the Russian market, and some market players announced a likelihood of selling their assets. Prior to the crisis global banks provided their Russian subsidiaries with cheap funding, which gave them competitive advantages on the Russian market. When foreign banks faced financial difficulties caused by the crisis, funding of subsidiaries was no longer a priority to many of them. For instance, last year KBC Group officially announced an intention to review the issuing of selling Absolut Bank, which it acquired for $1 bln in 2007. Swedish group Swedbank held talks over the sale of its Russian subsidiary with Finnish Pohjola Bank, but the parties failed to come to agreement.
“In view of solidifying market positions of state-run banks, lower business returns in the sector as a whole and stiffening competition many foreign players that had no time to expand business before the crisis will likely have either to sell their assets or enter the M&A market," Mikhail Matovnikov concluded.
