For BAWAG owner Cerberus, Postbank bid is just one option: Reuters

VIENNA/FRANKFURT, May 27 (Reuters) – It took years and a small fortune for U.S. investor Cerberus Capital Management to polish Austrian lender BAWAG PSK into a retail gem. The question now is whether it wants to try to repeat the trick with Deutsche Postbank.

The German retail bank is slated to be sold by Deutsche Bank by the end of next year and investment bankers have long pitched the idea of combining BAWAG PSK and Postbank, which use post offices as outlets for selling financial services products.

But while BAWAG PSK has become an efficient money spinner, Postbank needs a radical overhaul.
BAWAG has a cost-to-income ratio of 45 percent, Postbank’s is around 80 percent. BAWAG generates a return on equity after tax of nearly 20 times versus around 4 for Postbank.

It is far from clear that Germany’s strong labour unions would allow the same cost-cutting campaign that helped BAWAG PSK boost first-quarter profit by half while boosting its core capital ratio to 13.5 percent.

Private equity groups have often got a cool welcome from German regulators as well when banks go on sale.

Still, financial sources familiar with the situation told Reuters that BAWAG’s owners (Cerberus has 52 percent while U.S. ally GoldenTree Asset Management has nearly 40 percent) have approached Deutsche Bank about buying Postbank.

Any deal could be complicated by Deutsche’s primary plan to float Postbank on the stock exchange. One source said the German lender had not responded to the feelers while it decides how it wants to proceed.

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Another source put a very small chance on a Postbank acquisition because other options for the owners of BAWAG, Austria’s fifth-biggest bank by assets, were “more compelling”.

These included a trade sale, linking with another Austrian lender, doing a flotation or simply keeping the status quo and starting to draw dividends.

The argument for selling BAWAG hinges on its earnings power and relatively high capital ratio.

While people close to the bank say interest among potential suitors is high, no sale is imminent and the timing may not be ideal.

Austrian banks are under a cloud after the government last year imposed losses on junior creditors of nationalised lender Hypo Alpe Adria despite debt guarantees from its home province Carinthia.

Investors took another hit this year when the Financial Market Authority watchdog took control of the undercapitalised Heta Asset Resolution “bad bank” winding down Hypo’s rump, freezing debt repayments while planning how to share the pain among creditors.

Unlike Austrian rivals Erste Group, Raiffeisen Bank International and Bank Austria, BAWAG is exiting central and eastern Europe to focus on stabler economies in Austria, Germany, Britain and western Europe.

It is seeking retail acquisitions no matter how its strategic review pans out, although approaches to Volksbank and Raiffeisen have yielded no deals so far.

BAWAG declined to comment on any interest in Postbank, saying only its shareholders were exploring strategic options. (Additional reporting by Arno Schuetze; Editing by David Holmes)