Warburg Touts Minority Pacts For Europe Banks

  • Resistance to selling devalued assets
  • ‘Partnership model’ in series of deals
  • New team in London to scout for deals

Banks are reluctant to sell assets at knock-down prices and recent private equity attempts to buy assets in Europe have struggled as its financial institutions shed non-strategic assets to bulk up capital and meet stricter international rules.

Warburg Pincus financial services managing director Daniel Zilberman acknowledged it was an environment where “many people would rather not be sellers” after prices have fallen sharply since the euro zone crisis and global economic downturn, but he said the firm had found a formula it hoped would work.

“Our pitch to them is that we’d love to buy 100 percent but as a good partner we understand why they may not want to sell 100 percent right now,” he said. “Rather than sell the whole thing, bring me in as a partner, I will provide capital and we will make a big success of it together, and you will see a share in the upside.”

Warburg Pincus, with more than $40 billion of assets under management, has bought financial assets in Brazil, China and India, using its “partnership model,” taking majority stakes in businesses in just four out of 16 financial acquisitions it has made since 2009. In May, it reached a deal with fellow U.S. private equity firm General Atlantic LLC to buy a 50 percent stake in the asset management arm of Spain’s biggest bank Santander, clinching the deal by taking a minority stake, Zilberman said.

Now, Zilberman is moving to London from New York to set up a team of about five people to scour the region for more deals. “We are seeing the same opportunities in Europe as we did in the United States four years ago,” he said.

Gaining regulatory backing can also be tough in a region where governments want to protect their investments in some banks bailed out in the 2008 financial crisis. And buyers hunting for bargains have often not been prepared to meet asking prices. The International Monetary Fund said in 2012 that European banks need to sell loans or businesses worth $2.6 trillion to maintain capital ratios.

In terms of private equity-backed deals in the financial sector in Europe, just $642 million worth of deals have been done so far this year, down 55.8 percent on the same period last year, Thomson Reuters data shows. Private equity firms and hedge funds circling European financial assets have so far had more luck picking up bundles of soured loans than buying bank’s businesses.

The partnership model also brings its own challenges, Zilberman said, as governance and control issues can be more complex than when buying a company outright, and the working relationship makes or break a deal’s success. “You’re getting married in a way,” he said by telephone.

Warburg Pincus had previously worked with Spain’s Santander, taking, along with two other private equity investors, a 25 percent stake in the bank’s U.S. consumer finance business. That business could be listed on the stock market this year.

Zilberman declined to say if there was a similar plan for Santander’s asset management unit, but said that aside from growing the business by pushing more products, more acquisitions could materialize. “We are also open to inorganic growth,” he said.

Santander, which will book a 700 million euro ($926 million) net capital gain from the deal, has said it wants to double its assets under management in five years from about 152 billion euros now.

Anjuli Davies and Sarah White are correspondents for Reuters in London.