Privatization sees local lenders on different paths

Newsroom 04/03/2008 | 17:38

That is when privatization struggles put a full stop to the list of their similarities.
BCR took center stage of a record EUR 3.75 billion deal via Austrian Erste Bank, while CEC failed to reach even a fifth of BCR's price and was sent back to the reserve bench until better deals came the state's way.
CEC did not have the same investor appeal as BCR, in spite of the fact that it currently owns the biggest branch network on the market – 1,400, which is more than double what BCR controls. Unfortunately for CEC and the state, many of these branches are located in not-so-lucrative areas, some even in poor rural regions, therefore they do not actually represent that much of an asset for potential buyers. Moreover, investments needed to clean up the look of Romania's oldest lender were higher than those required by BCR, and so was the effort to evaluate just how much profit each branch produces in the absence of modern IT systems. Other than that, BCR was a leading player on the market two years ago, while CEC was struggling to catch up with the sudden competition from foreign, more up-to-the-minute lenders.
The halting of CEC's privatization in January 2007 was both applauded and booed at that time; it was approved and those who saw CEC as a much-needed bastion for the state in the banking system or by those who considered the offers on the Privatization Commission's plate to be disappointing. However, the annulment resolution was booed by those who saw it as yet more proof of the state's lack of credibility and viewed the state's evaluation of CEC as exceedingly inflated.
The Privatization Commission formed for CEC halted the bank's privatization process after Hungary's OTP Bank withdrew from the bidding, leaving the state with just one offer from the National Bank of Greece (NBG) in its lap. As NBG offered merely EUR 560 million for a 69.9 percent share in the bank compared to the EUR one billion the state supposedly expected, the privatization was put off until a later date, by which CEC's appeal should have improved.
“It's a bit less than we expected. The privatization process will not be resumed in the next two years,” said the finance minister at that time, Sebastian Vladescu.
The administration expected a deal comparable to the record-breaking sale of BCR, when Erste's offer for almost 62 percent of the bank's shares was a high for the Central and Eastern European market. However, CEC's marginal position on the market greatly differed from that of BCR, which held a very solid position in the local banking system at the time of its privatization.
NBG's offer valued the bank at EUR 800 million, which most analysts and bankers agree was more than CEC was worth.
“I think that the price announced by the minister of finance, EUR 800 million, was very high,” said Patrick Gelin, president of BRD-Societe Generale, in an interview with Business Review prior to the administration's final decision. SocGen was initially interested in taking over CEC, but lost interest along the
Bidding struggles for the bank had been going on for about a year and a half before they were called off. “BCR's first privatization attempt was also suspended; however, whether the decision to cancel CEC's privatization was a good decision entirely depends on whether the Romanian state follows up and truly restructures the bank over the next two years,” said Daniel Visoiu of the Biris Goran law firm.
The state is doing just that and started off by reshuffling CEC's management in August last year. Eugen Radulescu was replaced as the head of CEC by the former first vice-president of Alpha Bank, Radu Gratian Ghetea. The former management of the state-owned CEC, Radulescu and two vice-presidents, were removed from office by the Ministry of the Economy, the bank's sole shareholder.
BCR also started reinventing itself immediately after the privatization and kicked off this year with a search for a new general manager to replace Nicolae Danila.
The institution, currently the biggest local bank in the system, also started undergoing a “costly” makeover in September last year, which was supposed to shake off its former, somewhat dusty appearance and add to the new look the marks of its Vienna-based owner, Erste Bank. BCR posted net consolidated profits of EUR 219.6 million for the first nine months of 2007, a result deemed “satisfactory” by Erste Bank's general manager, Andreas Treichl.
Restructuring and transforming BCR cost Erste Bank as much as EUR 36.4 million, he said. BCR's net profits in Q3 2007 were up 21.2 percent against Q3 2006 due to an increase in loans. The aggregated volume of the bank's loan portfolio grew by 31.8 percent in the first nine months of 2007, from EUR 7.27 billion at the end of 2006.
CEC's financial results in 2007, on the other hand, were more than “satisfactory.” The bank doubled its net profits to EUR 26.7 million and intends to keep making a profit this year as well, in spite of high rebranding costs, said Ghetea.
At the end of last January, CEC assets were in excess of EUR 3 billion, up 37 percent compared to the previous year.

By Ana-Maria David

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