UniCredito eyes HVB buyout

FRANKFURT - UniCredito Italiano, Italy's second-largest bank, is in negotiations to buy Germany's HVB Group in Europe's biggest cross-border banking takeover.

A transaction is "highly uncertain", said UniCredito, while HVB said the outcome of the talks was still open.

The two disclosed the negotiations after HVB's shares rose 5.2 per cent in two days on speculation about a bid, valuing the German bank at US$18.9 billion ($26.5 billion).

By acquiring HVB, UniCredito would create a bank with about 733 billion ($1.29 trillion) in assets, leapfrogging Zurich-based Credit Suisse Group.

The purchase would also give UniCredito control of Bank Austria Creditanstalt, which has 10 million clients in Eastern Europe.

"The main attraction would be the creation of a clear No 1 in Central and Eastern Europe, almost double the size of the next-largest Western bank," London-based Merrill Lynch analyst Stuart Graham said last week.

HVB, formed from the merger of Hypo-Bank and Bayerische Vereinsbank seven years ago, has been relying on earnings from Vienna-based Bank Austria to make up for more than 5.7 billion of losses in three years. In January, HVB announced a 2.5 billion writedown of its German real-estate portfolio.

An US$18.9 billion purchase would be the biggest cross-border banking takeover in Europe, exceeding the US$15.2 billion that Santander Central Hispano, the largest bank in Spain and Latin America, paid last year for Britain's Abbey National.

European companies have been involved in US$375 billion of takeovers this year, 22 per cent more than in the same period last year, according to data compiled by Bloomberg. Europe's biggest cross-border takeover was Vodafone Group's acquisition of Mannesmann for US$180 billion in stock in 2000.

UniCredito and HVB together would become Europe's No 8 bank by assets. Zurich-based UBS, London-based HSBC Holdings and Credit Agricole of France are Europe's biggest banks by assets.

UniCredito chief executive Alessandro Profumo, 48, has been expanding abroad to lift earnings after the Bank of Italy in 1999 halted his attempt to buy domestic competitor Banca Commerciale Italiana.

It agreed in January to buy 57 per cent of Yapi & Kredi Bankasi, Turkey's No 4 non-state bank, with Istanbul's Koc Holding.

UniCredito earned 2.13 billion last year, almost twice as much as in 1999, and its return on equity reached 16.05 per cent.

HVB had a net loss of 2.3 billion because of the German property writedown.

UniCredito had 265.5 billion in assets at the end of last year, according to data compiled by Bloomberg. HVB had 467.4 billion in total assets.

Experts say the big question is what UniCredito will do with HVB's German business.

HVB's home market accounted for 53 per cent of operating revenue last year. Chief executive Dieter Rampl, 57, had announced plans to sell some of the non-performing loans to improve earnings in Europe's biggest economy.

HVB has been hobbled by real estate loans since its inception, after Hypo-Bank banked on a real-estate boom in the former East Germany following the fall of the Berlin Wall.

UniCredito shares fell 2c to 4.15 last Friday, valuing the company at 26.3 billion. HVB shares closed at 20.18.

- BLOOMBERG