20 December, 2011

Germany Bank Mergers & Acquisitions (HypoVereinsbank)

Photo: HypoVereinsbank’s (HVB Group) head office building Hypo-Haus in Munich, Germany.
Photo source: UniCredit HVB's web site.

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HVB Group and its
Bank Austria Creditanstalt subsidiary were taken over by Italy's UniCredit SpA in 2005.

HypoVereinsbank / HVB Group AG (a subsidiary of Italy's UniCredit SpA)

Bayerische Hypotheken- und Wechsel-Bank (Hypo-Bank)

In 1835, King Ludwig I of Bavaria signed a decree authorizing the establishment of Bayerische Hypotheken- und Wechsel-Bank (“Bavarian Mortgage and Exchange Bank”). As its name suggests, the bank’s main focus was on mortgage lending and commercial lending (discounting bills of exchange for businesses). The bank made its first securities underwriting deal in 1879 when it participated in a syndicated bond issue to finance the Bavarian railroad.

In 1889, Bayerische Hypotheken- und Wechsel Bank joined the much larger Deutsche Bank, Disconto-Gesellschaft and other partner banks to create the Deutsch-Asiatische Bank in the Chinese port city of Shanghai. China during the late 19th century was very weak and foreign countries seized the chance to impose preferential trading rights and to establish colony-like territories in China for their industrial and commercial exploitation. Deutsch-Asiatische Bank was only one of a dozen or so British, French, Belgian, Dutch, German, Russian, Portuguese, Scandinavian, Japanese and American banks that created subsidiaries in China to further the economic interests of their home countries.

By 1908, Hypo-Bank (as Bayerische Hypotheken- und Wechsel-Bank was commonly known) had become the leading mortgage lender in the country but Germany soon plunged into 50 years of turbulence. The outbreak of World War I in 1914 embroiled Europe, Africa and the Middle East in deadly battles as rival European powers and the Ottoman Empire invoked defence alliances and declared war upon each other and their overseas colonies. The four-year war led to some 35 million casualties and ended four major imperial powers, including the German Empire.

After its defeat, Germany suffered a decade of economic and social turmoil. In 1922, radical currency devaluation and a massive increase in money supply led to the infamous hyper-inflation, which made the German mark practically worthless. The hyper-inflation then fuelled a consumption boom, as consumers and businesses alike would rather fully spend the paper money that they received daily, than to hold on to it overnight when it was worth even less the following day. The sky-high inflation rendered Hypo-Bank’s main business of mortgage lending meaningless, as repayments made by borrowers became worthless to the bank due to the much diminished purchasing power of money. Meanwhile, in order to pay the Treaty of Versailles reparations, Germany borrowed heavily from foreign banks and creditors during the 1920s.

Conditions worsened as the 1920s drew to a close when the American stock and real estate markets crashed in October 1929. Foreign creditors withdrew their credit to Germany as loan losses mounted. Then in May 1931, Austrian bank Credit-Anstalt became insolvent due to years of excessive lending, poor management and the cruimbling economy, sending more shocks to the German public. In July, the panic reached its peak in Germany and led to a general run on the nation’s banks. The government imposed a forced, two-day shutdown of all banks on July 14 and July 15, 1931, to restore order in the banking industry.

Ironically, it was the rise of Nazism and rearmament spending that lifted the German economy in the mid-1930s. Lives and economic development were once again devastated across the world by World War II, when Japan invaded China in 1937, and Germany invaded Poland in 1939.

Hypo-Bank wrote off numerous mortgage loans and properties as millions of people were displaced and cities and towns were destroyed during the war. Peace returned in 1945 but things only slowly began to improve in 1947 after the signing of the European Recovery Plan (commonly known as the Marshall Plan), which saw the United States providing USD $12-billion in aid for Western Europe to rebuild the devastated areas. As the German economy boomed, Hypo-Bank greatly expanded its network of branches in the 1960s and 1970s. In the 1980s, the bank formed alliances with other European banks to offer syndicated loans internationally. These alliances allowed smaller European banks to participate international financings that were otherwise too big and too risky for them to offer on their own individually.

The year 1990 was an important one for German history as the collapse of the communist Soviet Bloc led to the reunification of the two Germanys. Hypo-Bank moved aggressively into the East German mortgage market in the early 1990s, a move that the bank would later regret. The bank, however, made the right move by also entering the Eastern European market. In 1992, it set up a subsidiary in Czech Republic; one year later, more subsidiaries were created in Hungary, Poland and Slovakia.

Bayerische Vereinsbank

In 1869, King Ludwig II of Bavaria granted a licence to a group of Munich private bankers to establish the Bayerische Vereinsbank. The bank set out to serve the rapidly industrializing Bavarian economy. In 1870, it issued a loan to finance the building of the Bavarian railway and one year later, began to issue real estate loans. For the next 100 years, Bayerische Vereinsbank remained largely regional in nature compared with the Berlin-based grossbanken (Big Banks) such as Deutsche Bank and Dresdner Bank.

Following World War I, the German economy went into a tailspin and Bayerische Vereinsbank responded by forming alliances with several banks in Berlin and Bavaria. These alliances typically involved cross-minority-shareholdings between the smaller banks, as well as cross-representation on each other’s boards of directors. By adopting this strategy, these smaller banks were able to preserve their independence by making themselves unpalatable to the grossbanken, and yet the alliances allowed them to assist each other financially in times of crisis.

In the aftermath of World War II, the grossbanken like Deutsche Bank, Dresdner Bank and Commerzbank were found guilty of war crimes in financing the Nazi war machine and were broken up into many smaller banks. Regional banks like Bayerische Vereinsbank and Bayerische Hypotheken- und Wechsel-Bank were spared and allowed to operate freely. In 1969 Bayerische Vereinsbank first proposed to combine with its rival Bayerische Hypotheken- und Wechsel-Bank to compete with the grossbanken. Talks however broke off in 1971 when the Bavarian state government insisted that the Bayerische Staatsbank be part of a three-way merger. Subsequently, Bayerische Vereinsbank did end up acquiring Bayerische Staatsbank alone.

In the 1970s Bayerische Vereinsbank finally forayed into the international scene when offices were opened in Rio de Janeiro, Tokyo, Tehran, New York, Chicago, Paris, Johannesburg, London and Hong Kong.

In 1989, Bayerische Vereinsbank joined four other Western European banks (Austria’s Creditanstalt-Bankverein, Banca Commerciale Italiana, France’s Credit Lyonnais and Finland’s Kansallis-Osaki-Pankki) as well as three state-owned Soviet banks (Vneshekonombank, Sberbank and Promstroibank) to establish the International Moscow Bank. It was the first ever Soviet-based bank funded partly by western capital. (Both Bayerische Vereinsbank and Creditanstalt-Bankverein became part of the HVB Group, and HVB Group and International Moscow Bank both became part of UniCredit.)

Recent transaction(s):

  • In 1992, Bayerische Vereinsbank acquired Austria’s Schoeller & Co. Bank, a private bank with 13 branches.
  • In 1997, Bayerische Vereinsbank and Bayerische Hypotheken- und Wechsel-Bank announced their merger agreement. The move was to pre-empt a rumoured takeover of Bayerische Vereinsbank by Deutsche Bank and of Bayerische Hypotheken- und Wechsel Bank by Dresdner Bank. The merger was completed in 1998 and the new bank took up a new name: Bayerische Hypo- und Vereinsbank, to be commonly known as HypoVereinsbank.
  • Between 1998 and 1999, HypoVereinsbank acquired majority control of Poland’s Bank Przemyslowo-Handlowy (BPH); HypoVereinsbank then merged its own Polish operations BV Polska and Hypo-Bank Polska into the newly-acquired BPH.
  • In 2000, HypoVereinsbank acquired Bank Austria Creditanstalt (BA-CA) for Euro 7.8-billion (USD $7.3-billion). BA-CA was Austria’s largest bank with 280 domestic branches, plus another 400 branches across Central and Eastern Europe.
  • In 2001, HypoVereinsbank merged its own Polish operations BPH with Bank Austria Creditanstalt’s Polish subsidiary Powszechny Bank Kredytowy (PBK) to form BPH PBK S.A., one of the largest banks in the country.
  • In 2001, HypoVereinsbank transferred its Central and Eastern European operations to its BA-CA subsidiary.
  • In 2002, Bayerische Hypo- und Vereinsbank changed its name to HVB Group.
  • Also in 2002, HVB’s BA-CA subsidiary bought Bulgaria’s Bank Biochim.
  • Also in 2002, HVB’s BA-CA subsidiary bought 62.6% of Croatia’s Splitska Banka from UniCredito Italiano for Eur 94-million. In 2005, Splitska Banka became part of UniCredito Italiano once again when the Croatian bank's parent HVB Group was taken over by UniCredito Italiano.
  • In 2003, amidst mounting loan losses at HVB Group due to a wave of corporate bankruptcies resulting from the “tech bust” and the September 11 fallouts, HVB raised Euro 958-million cash by re-floating 22.5% of Bank Austria Creditanstalt on the Vienna and Warsaw stock exchanges.
  • In 2004, HVB’s BA-CA bought Bulgaria’s Hebros Bank.
  • Also in 2004, HVB’s BA-CA bought Serbia’s Eksimbanka.
  • Also in 2004, HVB Group contributed 2/3 of a USD $100-million capital injection for International Moscow Bank and raised its stake to 52.9%, wrestling control of the Russian bank from its other Swedish and French minority shareholders.
  • In 2005, UniCredito Italiano bought HVB Group for Euro 15.4 billion (USD $19.4-billion). In addition, UniCredito Italiano also made an offer to buy out the 22.5% of Bank Austria Creditanstalt held by the public for Eur 2.63-billion, as well as the 29% of Poland's Bank BPH PBK held by the public for about Eur 1.48-billion. The three offers totalled about Eur 19.5-billion (USD $24.5-billion). HVB Group already owns 77.5% of Bank Austria Creditanstalt and 71% of Bank BPH PBK.
  • Subsequently, however, the Polish banking regulator vetoed UniCredito Italiano's bid to privatize Bank BPH PBK for Eur 1.55-billion. UniCredito Italiano withdrew its offer for the Polish bank in early 2006, but still indirectly held 71% of the bank through its acquisition of Germany's HVB Group.
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