Bank consolidation expected as crisis creates opportunities

  • 2009-12-10
  • Staff and wire reports

RIGA - Latvian and Lithuanian banks are reported to have the highest need for new capital in Eastern and Central Europe because they rely on collateral that has been falling in value amid steep house price declines, says Bloomberg. “Recapitalization requirements for Lithuania and Latvia could be substantial,” says a Fitch rating agency report.
For banks in better shape, buying opportunities are opening up as asset prices sink, including in the Baltics.
Nordea’s chief financial officer Fredrik Rystedt sees potential for acquisitions in the fragmented markets of Denmark and Poland, though is writing off hopes of big growth in the troubled Baltics for the next few years. Rystedt said that the financial crisis had put some banks under pressure, creating some consolidation opportunities, but that Nordea would carefully compare going the outright acquisition route with internal organic growth.

Nordea, the Nordic region’s biggest bank by value, has been touted as the most likely to drive smaller-scale mergers and acquisitions in its existing markets and has in recent weeks been named a possible buyer of Swedbank, as its Swedish rival struggles with heavy Baltic exposure.
Nordea has already picked up two Danish banks in the past year and believes there will be further consolidation in the Nordic countries and elsewhere. “Maybe in Norway. Finland is more unlikely. And of course Sweden has been discussed for ages,” said Rystedt.

Rystedt says several tough years lie ahead for Latvia, Lithuania and Estonia, and believes it is difficult to pinpoint any major opportunities in the region. “I would not define that as a major growth area for Nordea in the next few years,” he said. “I think that is unlikely given the challenges that they have in the economy.”
Some media reports have suggested that Nordea is interested in the ailing Latvian bank Parex, or at least parts of it. The state had to move in and take over the failing bank last November as a run on the bank depleted it of reserves.
Parex President Nils Melngailis said on Nov. 22 that the bank will need more state aid, in the amount of “not more than 100 million lats (142.8 million euros) so as to make its next syndicated loan payment, reports LETA.
He “hopes that the state will not have to invest any more in the bank’s share capital.”

Talk has revolved around splitting the bank’s assets into two parts – one holding the good assets, the other the bad – and looking for a buyer for the good assets while the state figures out what to do with the bad.
The Baltic region has in general been a major trouble spot for Nordic banks following years of heavy lending to the once booming countries. Rystedt, however, says he sees some positive signs in the region, especially in Estonia.