You're reading: Sberbank could muscle up puny eurozone banks

Russia's state bank Sberbank, now the third-largest by stock market value among Europe's shrunken banks, has the money and the motive to inject some much needed capital into one or more of its troubled euro zonerivals.

Investors attending the Reuters Russia Investment Summit this week were not keen on an opportunistic stake purchase, but some were attracted by the idea of a bargain-priced strategic expansion.

"I think it’s something that they might be considering," said Jacob Grapengiesser, a partner in the fund manager East Capital and Sberbank’s seventh largest private institutional shareholder with 0.44 percent according to Reuters data.

"I don’t think they would buy a Lloyds or just a regular western European bank. I don’t think that makes any sense for them, but to buy a bank which is exposed to eastern Europe, where there is some growth and some good margins you can make good margins, yes that would make sense for them. They have the capital."

Sberbank has already made a modest start in this direction.

Last week it clinched a deal to buy VBI, the eastern European arm of Austrian lender Oesterreichische Volksbanken (OTVVp.VI) for a base price of 585 million euros ($796 million).

The deal will help Volksbanken — which failed a European bank stress test in July — restabilize and repay Austrian state aid it got during the financial crisis.

Sberbank Chief Executive German Gref told reporters at the time that his strategy was a long term one.

"We went into the European market not to pursue short-term goals and to make quick profits, but to be in the market for a long time, for decades," he said in the ornate hall of Vienna’s former stock exchange building.

He reiterated he had his eye on Turkey and Poland as well, where there has been talk of takeover interest in Polish lenders Kredyt bank BRKE.WA, owned by KBC Group’s (KBC.BR) or Millennium, mainly owned by Banco Comercial Portugues (BCP.LS) — also in need of funds.

Sberbank certainly has the financial strength to do a bigger deal, or even to acquire a stake in a bank such as Societe Generale (SOGN.PA), whose stock market value has shrunk below $20 billion in recent weeks on falling confidence in its ability to manage its exposure to Greek sovereign debt, and whose name came up a lot at the summit.

Sberbank is Russia’s biggest bank with 50 percent of deposits. It is 57.58 percent owned by Russia’s central bank and has a stock market value of around $59 billion.

As of 30 June 2011, its total capital adequacy ratio (Tier 1 and Tier 2) calculated under Basel 1 was 17.9 percent, well above the 8 percent minimum requirement. Its Tier 1 ratio was 13.3 percent.

"There are some questions regarding Sberbank’s high capital adequacy ratio, which is much higher than the needed level," said Maxim Shein, an analyst with BrokerCreditService. (This) is likely showing that capital is needed for some kind of purchases."

FINANCE MINISTRY OPPOSITION

Yet a Sovereign Wealth Fund-style stake purchase of a weakened bank would not be welcomed by all investors, least of all the government.

"I would not welcome any serious purchase at the moment," Finance Minister Alexei Kudrin said at the summit, held at the Reuters office in Moscow.

The government had planned to sell a 7.6 percent stake in Sberbank this month, reducing its stake to 50 percent plus one golden share, but given adverse market conditions and strong budget performance Russia can afford to wait, Kudrin said.

Any deal by Sberbank may have to wait until after that stake sale, which will probably not come until after presidential elections in March next year, one investment banker said.