Erste Bank: wins a 61.9% stake in BCR for EUR 3.75bn

Erste Bank: wins a 61.9% stake in BCR for EUR 3.75bn; it plans to issue EUR 2.4bn in new shares. Yesterday, the Romanian finance minister announced Erste Bank as the winner of the 61.88% stake in Bank BCR with its bid of EUR 3.75bn. Erste Bank was favored to win in the contest with Portuguese Millennium BCP. Erste Bank’s bid equates to 5.82x historic book value vs. our expectations of some 5.0x (total equity (1H04A) = € 1.042m) and 29.7x prospective earnings (net income (2005F) = € 204m). While Erste Bank has stated that limited liquidity on the Romanian stock exchange makes a multiple comparison with other listed banks a misleading indicator, the fact remains that they aren't remotely cheap. BRD trades at a consensus 2005F P/E of 26.5x and a historical P/BV at 6.4x, while Bank Transilvania (TLV) trades at a historical P/E of 38.9x and a historical P/BV at 9.9x. Given that both of these listed banks have ROEs above 20% vs. an historic ROE at BCR of 17%, we have stated that it is reasonable to expect a somewhat lower P/BV multiple for the BCR transaction but that a multiple of 5x or even more would look realistic. Erste bank stated that it would issue EUR 2.4bn of new shares in an SOP issue in 1Q06. With our expectation having been for a new share issue of only some EUR 2bn; and, with the market having expected a price below the one actually paid, we would expect to see a negative market reaction today in the price of the stock.