Latin Finance - March/April 2012 - 63

Andean bank consolidation

Paying Top Dollar
by Raúl Gallegos uying a majority stake in Colombia’s Correval brokerage: $76 million. Acquiring control of Colombia’s Colpatria bank: $1 billion. Purchasing Santander’s Colombia unit: $1.2 billion. Getting a footprint in Colombia’s financial system: priceless. Foreign banks eager to enter the growing Colombian financial sector have propelled bank valuations to new highs over the last six months, and the shrinking pool of potential targets suggests prices can only go higher. The largest Colombian banks are, at the same time, seeking to expand beyond their borders, leading many observers to conclude that the mergers and acquisitions activity coming from the Andean country has yet to run its course. The December sale of Santander’s Colombia business is an example of what is happening in Colombia. Chile’s Corpbanca and CorpGroup, eager One bank that is not for sale to break into the market, paid the Spanish bank $1.225 billion for access to Colombia, a purchase price that amounted to 2.7 times the book value of the unit, and a cut above prices for traded shares of comparable Colombian banks. Scotiabank’s October purchase of a 51% stake in Colombia’s Colpatria also set a high water mark. The Canadian bank paid $1 billion for the assets, a price of 3.6 times book value and an implied share price that amounted to 12 times the bank’s earnings – a hefty price tag for a bank that caters to low-income consumers. Some Colombian financial institutions, themselves flush with cash and ambition, have ventured to buy other banks in the region, such as Colombia’s Davivienda, the country’s third largest financial institution, which in January acquired HSBC’s units in Costa Rica, El Salvador and Honduras for $801 million. “Colombia’s [banking] sector has become the most attractive one in the region from the point of view of profitability and growth opportunities,” says Gerard Cremous, head of Latin American financial institutions within investment banking at UBS.

Colombia’s expensive and expansive banking system is enjoying its salad days. More and pricier M&A deals may still be on the horizon.

Cremous’ unit has had an advisory role in nearly every major transaction involving Colombia’s financial sector with the exception of the Santander sale for which no investment banks were hired. Cremous and other observers believe that large transactions will be hard to come by in Colombia going forward, but M&A activity is far from done.

Sound Backdrop

A look at Colombia’s economic metrics offers an inkling of why so many want a way into the country’s financial sector. A country that for many years was associated in the global imagination with leftist guerrillas and larger-than-life drug kingpins now boasts Baa3/BBB- investment grade credit ratings from Moody’s and Standard & Poor’s respectively. Under President Juan Manuel Santos the country continues to follow a path of sound macroeconomic measures, fiscal reforms and a progressively smaller debt burden. All of this is happening at a time when the country enjoys rising investment

March/April 2012

LatinFinance 63

Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012