No sooner have share prices bounced than sector analysts are back to merry game of fantasy M&A – albeit with a post-Crunch twist.
Folkert Jan Van Der Veer and Nigel Myer of Dresdner Kleinwort suggested on Tuesday that management at Fortis – penned in by a weak balance sheet – might offer up the bank’s independence and seek a merger partner.
In terms of suitors, the obvious name is BNP Paribas, the analysts say – creating what would be Europe’s largest bank by assets.
Based on its own targets, Fortis had a capital deficit of €3.1bn at the end of the second quarter, while in terms of leverage levels the bank has probably exceeded the level where rating agencies and regulators feel comfortable.
From a Dresdner note dispatched on Tuesday:
Management may look for an alternative way to address its balance sheet weakness and could decide to team up with a stronger bank. A Fortis-BNP combination would make strategic sense in our view and would create Europe’s largest bank by total assets, with dominant market positions in France and the BeNeLux. A possible significant hurdle to such a transaction could be the complexity of integrating the operations, and it may encounter a negative reception at both rating agencies and regulators.
We think signs of equity market stabilisation and better insight into the depth of the macroeconomic downturn are required before such a deal could crystallise. Also, Fortis management requires time to evaluate its options, although the limited financial flexibility and lack of experienced senior management may speed up its decision-making process. The probability of a BNP-Fortis deal should increase in 2009.