The battle over ABN Amro has set the banking world alight. But it would be premature to think it will unlock the European cross-border banking market.
In the short term at least, it is difficult to see hostile bids being mounted in continental Europe where governments and regulators are bound to block any undesired approaches for their domestic banks – particularly the healthy ones.
So far, the only big cross-border deals in Europe have involved troubled or weak banks such as Germany’s HVB, which has now been absorbed by Italy’s UniCredit. Abbey National was also a struggling bank in the UK, allowing Santander of Spain to move in. As for ABN Amro, the Dutch bank was a serial underperformer and a sitting duck for the likes of TCI and activist funds, which are often the pathfinders of the big bank bidders.
The latest speculation is that UniCredit is about to make a fresh move – either across the Alps into France or at home down in Rome. But in both cases, the chances of UniCredit pulling off a quick, clean deal seem pretty remote.
The problem of a merger with France’s Société Générale – to create a new European banking powerhouse – is that it would first need one of the banks’ chief executives to step aside to allow the other to run the business. This is likely to prove quite tricky given that both SocGen’s Daniel Bouton and UniCredit’s Alessandro Profumo are strong individuals and ambitious managers at the head of two highly successful banks. Under the circumstances, it is difficult to see one giving way to the other.
Even if this governance issue were to be resolved – Mr Profumo, for example, could become chairman and Mr Bouton chief executive of the combined group – the merger would face all the usual problems of protectionism and national sensitivities that would have to be dealt with. It is still difficult to imagine an Italian running an important French financial institution.
On the face of it, it should be easier for UniCredit to acquire control of Capitalia. After all, this would involve a more traditional takeover of a smaller domestic rival. Yet Capitalia could prove even more complicated than SocGen, hobbled as it is by an internal governance tussle between controversial veteran chairman Cesare Geronzi and its younger chief executive Matteo Arpe. The Rome bank is also part of a tangled web of power and influence in the Italian system and any move by UniCredit is likely to be resisted by Mr Geronzi.
In any event, the rumours of any such deal are continuing to push Capitalia’s share price beyond Mr Profumo’s stated short-term value-creating criteria. So by fanning the flames of takeover rumours, Mr Geronzi seems already to be mounting a blocking defence and frustrating Mr Profumo’s ambitions.
The price of luxury
Remember the old story of the lettuce at Harrods. If it costs 20p nobody will buy it, but if it is sold for £2 everybody wants it. So the idea that price is a problem in the luxury goods industry is a contradiction in terms.
Yet this did not stop the French king of luxury, Bernard Arnault, complaining at his LVMH group’s annual shareholders meeting that the euro had reached “incomprehensible” levels against the dollar and the yen.
He did concede that he was lucky to be in a business (premium champagnes and cognac, high fashion and leather goods) that could raise prices to offset the weakening dollar and the lower yen in some of the group’s markets. But he also warned LVMH that price rises in important markets could not be automatic.
So there does seem to be a limit to how much consumers are prepared to pay for luxury goods. LVMH’s smaller but possibly even more exclusive French rival Hermès admitted as much Thursday when it reported a weaker-than-expected rise in first-quarter sales because of falling revenues in Japan.
The company in January raised its prices by 8.5 per cent in Japan to try to protect its margins from the weakening yen.
But this seems to have been too much even for the luxury goods-obsessed Japanese consumer.
Unlike his counterpart at Hermès, who does not believe politics has any business in trying to twist the arm of the European Central Bank, Mr Arnault has long been a critic of the ECB, its French president Jean-Claude Trichet and its interest rate policy. As a friend and supporter of Nicolas Sarkozy it would be no surprise if he were to egg the new French president on to pursue his anti-ECB campaign.
If luxury goods manufacturers are so worried about the strong euro and its impact on sales in some of the markets that have been so good to them in the past, the obvious thing to do is cut their already exorbitant margins.