Who could be a better negotiator than Mian Muhammad Mansha? Buying RBS operations at 0.7 times the book value, while selling part of MCBs non-controlling stake at 5.1 times the book last year, gives an insight into this one of the richest men in Pakistans mind. Now, compare this to ABN (now RBS) buying Prime Bank - with infectious books - at 4 times the book in 2007. Surely, MCBs mangers are astute.
The deal would be at par of RBSs book value, even if we take all the unprovided bad loans (26% of total bad loans) out of its books. Moreover, taking Prime Banks portion at par, MCB is effectively paying a mere $31 million (Rs 2.5 billion) for ABNs segment.
The transaction - which hasnt been finalised yet - is reported to be valued at $90.4 million (Rs 7.5 billion). But enough about pricing, lets discuss the potential synergies MCB can extract out of the deal. MCB missed out on the opportunity to penetrate consumer banking during the last banking boom. Now, with lower consumer confidence amid high non-performers it would have been near impossible to enter the premium pricing segment.
RBS with 30 percent of its loans in the consumer segment -- mainly ABNs clean preferred banking portion -- gives the right impetus to MCB to mark its position in this segment. Although, it will increase MCBs consumer segment shares by 390 bps to 16 percent, it still falls short of the market leader amongst local giants, UBL, whose share in consumer segment stands at 23 percent. It also adds a bit on the cost of funds, as consolidated MCB deposits will increase fixed deposits by 563 bps to 24 percent.
On the flip side, cannibalisation of over 100 branches of RBS, primarily Prime Banks portion, would eat the benefits of synergies obtained from acquiring the consumer portfolio. This requires major efforts to resolve softer issues, like retrenchment of employees and closing of branches.
This raises a question - why did JSBL, the rival bidder for RBS, move away from the deal? Instead of following the slow organic growth model, JSBL would have benefited from RBS acquisition. Clearly the banks 100-branch network could have added more value to JSBL than it will to MCB, which already has an extensive network.
While there is no official word in the market - hush-hush talks suggest that either its the long-standing friendship between Mansha and Jehangir Siddiqui that persuaded JSBL managers to drop the idea or its the central banks philosophy to let only the big players expand further, which silenced JSBLs bid.
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