Bank of Alexandria abandoned its state-owned identity and is now in Italian hands. Sherine Abdel-Razek looks at the deal When the closed auctioning session ended on Tuesday afternoon, news immediately leaked that the highest bidder, Italian Sanpaolo IMI Bank, has become the new owner of Bank of Alexandria (BoA), making it Egypt's largest private bank. The news took many by surprise because the Italian bidder was the lame horse in the race to buy BoA, according to analysts. Egypt's smallest public sector bank was expected to fall in the lap of either the cash-rich Gulf consortia, led by the Jordanian Arab Bank, or France's renowned BNP Paribas. Speculation that it would be the latter was high since the French bank was keen on strengthening its position in Egypt, especially that its main competitor Société Générale acquired Misr International Bank last year. This made Société Générale Egypt's second largest private bank. Sanpaolo is one of Italy's leading banks, currently operating in 34 countries. It has around 43,000 employees and 4,000 private bankers, serving approximately seven million customers through a network of almost 3,200 branches throughout Italy. It will soon merge forces with the Italian Banca Intesa to form the fourth biggest bank in the European Union. The auction committee was headed by the vice chairman of the State Council and membered by the deputy governor of the Central Bank of Egypt (CBE), representatives from the ministries of investment and finance, as well as the CBE. The real surprise was the value of the deal which was revealed at a news conference following the three-round auction. Sanpaolo offered to buy 80 per cent of BoA at $12.6 per share, making the deal worth more than LE9.2 billion, and exceeding the most optimistic estimates of analysts. The second highest bid at LE7.9 billion was offered by the joint venture of Jordan's Arab Bank, Saudi Arabia's Arab National Bank and a consortium of Dubai's Mashreq Bank and Dubai Investment Group. All banking specialists interviewed by Al-Ahram Weekly the day before the auction expected the closing price to be 3-3.5 the bank's book value. However, and based on the par value of LE5 "the deal yields a record-high price book value ratio of 5.8 times, compared to an average ratio of 2.2 times for recent mergers and acquisitions in the banking sector," noted Hatem Alaa, banking analyst at HC Securities soon after the deal was closed. Responding to a question from the Weekly about the inflated value of the deal, Sanpaolo's General Manager Pietro Modiano said he did not feel it was "overvalued". "We are strategic investors eyeing Egypt's fast growing economy and population, in addition to benefit from its proximity to Italy," Modiano responded. "We are not portfolio investors who just want to buy a stake in a company and get a good yield." According to Minister of Finance Youssef Boutros Ghali, the proceeds of the sale will be used in improving the social safety net through funding development projects. The sale of BoA is considered the first phase of divesting the bank, to be followed by selling five per cent to the bank's employees, and the remaining 15 per cent stake will be floated in the stock market in the form of IPOs. The timeline is yet to be decided. Another surprise was the sudden pullout of the Greek Eurobank on the eve of the auction, which was shortly followed by the Egyptian Commercial International Bank (CIB). According to CIB Chairman Hisham Ezz El-Arab, his bank had undertaken all the needed research and evaluation, but submitted a bid which did not meet the conditions of the seller. Ezz El-Arab did not elaborate on these conditions. The privatisation of BoA is in line with policies to overhaul the banking sector which began in 2004, aiming at nearly halving the public sector stake in the banking arena from 75 per cent to 40 per cent. After the divestiture of state bank ownership in many joint venture banks and the sale of BoA, the percentage stands at around 60 per cent. BoA, which will keep both its name and senior management after the sale, is the smallest of what used to be the 'big four' public sector banks (down to three after Banque Misr and Banque du Caire merged), with a paid-in capital of LE800 million. According to bank analyst Alaa, BoA stands as the third largest bank in Egypt as of June, 2005, capturing six per cent of bank deposits and 4.6 per cent of bank loans. It has 188 branches and 7,000 employees. In preparation for privatisation, the bank's overhaul was engineered by its Chairman Mahmoud Abdel-Latif who, with a strong background in Gulf private banks, succeeded in boosting the bank's selling profile since he took over three years ago. BoA's loan portfolio of LE14.2 billion (as of June, 2005) was reduced to LE7.9 billion (as of March, 2006) through a cash sale to the National Investment Bank (NIB) of BoA's public enterprise non- performing loans. Much still needs to be done, stressed Sanpaolo's Modiano. He said the main challenge in the deal would be improving the quality of the services in the bank. The total cost of restructuring and upgrading the facilities at BoA is estimated at LE10 billion.
