The headquarters of the Austrian bank, Bawag, is an architectural jewel. The impressive building, which lies in the heart of Vienna, was designed by the legendary architect Otto Wagner at the start of the twentieth century.
As a handful of tourists roam through the museum in the historic counter area, the tension on the top floors of the bank is palpable.
Insiders say the Austrian bank, which is majority-owned by U.S. investment firm Cerberus, is making a move for Deutsche Postbank, the retail arm of Deutsche Bank.
It’s an ambitious bid for this small, 130-year-old Austrian bank, which dwarfs its German competitor, and a sign of just how hungry Bawag’s leaderhip is for new acquisitions in western Europe.
“All major banks in Europe should carefully examine their business model. There is still a lot of room for further consolidation in the financial sector.”
Rather than offering the traditional “no comment,” the Austrian bank has hardly stayed quiet about its bid for Postbank.
“We want to make purchases domestically and abroad,” Byron Haynes, Bawag’s chief executive, told Handelsblatt. “In doing so, we are looking to the West. There are especially a number of possibilities to create synergies in private and corporate banking.”
Bawag, which is the product of a merger between a union-controlled bank and the postal-savings bank in Austria, has been preparing for this western expansion for a number of years.
Led by the private-equity firm Cerberus, it has drastically cut costs and sold eastern European subsidiaries in Slovakia, the Czech Republic and Slovenia.
Mr. Haynes, a British executive who lives in Budapest by choice, said he has the support of his demanding majority shareholders when it comes to the planned expansion. He says the bank has clearly turned a corner.
“The restructuring was anything but simple,” he said. “But we tackled the transformation sooner than others. That is now paying off.”
Whether they will get their hands on the German prize is anything but certain.
Bawag is reportedly prepared to pay up to €4.5 billion for Postbank, which Deutsche Bank last month announced it would spin off as part of a dramatic restructuring of Germany’s largest bank.
But while Deutsche Bank’s leadership is probably relieved it has an offer, the price is well below what Deutsche Bank hopes to get for its Bonn-based subsidiary. The offer price is below the €6.3 billion that Deutsche Bank paid to acquire Postbank in 2008.
If you believe Deutsche Bank’s leadership, selling Postbank isn’t even the preferred option. At the Bonn headquarters of Postbank, employees are preparing themselves for going public instead. This is the option that Deutsche Bank co-CEO Jürgen Fitschen has said the bank prefers.
Nearly everyone in the industry agrees that Deutsche will never earn back what it paid for Postbank in 2008. Deutsche Bank got on board with the bank one day before the collapse of Lehman Brothers, which set off the global financial crisis.
But Deutsche is clearly keeping its options open. Should a lucrative offer be received from Austria, for example, then management may not be able to ignore it. The idea of an initial public offering might be a thing of the past.
Bawag and Postbank could be a good fit in theory – they follow a comparable business model that concentrates on customers stemming from postal branches.
But based on the number of customers, the Bonn-based bank is almost nine times as large as the Vienna-based bank.
Still, Bawag is the more profitable of the two. The restructuring of the Austrian bank, which has just 500 branches and 2,700 employees, is starting to bear fruit.
Last quarter the bank’s net profit increased by more than half to €121 million. The cost-income ratio fell by almost 8 percent to more than 45 percent. The bank’s operating profitability has made continuous gains in the past five quarters.
“We consider ourselves a prime example for the banking industry, for how client business can get a new footing,” Mr. Haynes said proudly.
Postbank, by comparison, has struggled. With a return on equity of just 4.4 percent, the German postal bank is less profitable than Deutsche Bank’s own retail branches.
The bank also has a heavy balance sheet – making up about one tenth of Deutsche Bank’s total assets. It’s a key reason why Germany’s largest bank, which is under pressure from regulators to downsize, has been forced to sell the subsidiary.
Bawag CEO Mr. Haynes said he didn’t find Deutsche Bank’s strategic decision to part with its retail subsidiary surprising.
“All major banks in Europe should carefully examine their business model,” said Mr. Haynes. “There is still a lot of room for further consolidation in the financial sector.”
Cerberus acquired Bawag in the summer of 2008 – also before the start of the recent financial crisis. Since then, no stone in Vienna has remained unturned.
About 1,300 employees have left the 130-year-old bank. The majority shareholders have invested more than €100 million in restructuring the branch operations in Austria.
“We are a bank that puts efficiency at the heart of its activities,” said Mr. Haynes. “Customer transactions are our core business. We have concentrated on the sale of strategically irrelevant business units of the bank.”
That strategy continues today. Just a few days ago, the Austrian bank sold its share of a joint pension fund to German insurer Allianz.
Today, Bawag is operating a multi-channel strategy. That means, it offers customers both personal and digital services. At their Austrian postal branches, they concentrate on non-standard products that require more consultation.
“The long opening hours of our branches operated with the Austrian postal service are a competitive advantage for us,” said Mr. Haynes, referring to the competition in Austria from Raiffeisen and Die Erste.
While Bawag looks to expand, there has also long been speculation that Cerberus could one day part ways with its Austrian subsidiary. The financial investor has, after all, been invested in Vienna for seven years.
Potential buyers have been named, including the Spain’s Banco Santander, Europe’s largest bank by market capitalization. But in the end there has never been an offer.
“We have not received a takeover offer,” said Mr. Haynes. “Selling would have so far made no sense for the owners, because the restructuring, including an expansion, has not yet been completed,” he said.
Mr. Haynes he doesn’t consider the restructuring settled just yet. Top of his list is the increasing digitalization of the business.
“The transformation of Bawag is not complete,” he said. “It is a permanent, ongoing process.”
Hans-Peter Siebenhaar is Handelsblatt’s chief correspondent in Vienna. Oliver Stock leads Handelsblatt’s online coverage our of Düsseldorf. Laura de la Motte, a banking correspondent in Frankfurt, also contributed to this story. To contact the authors: firstname.lastname@example.org and email@example.com