Bank rally may lead Belgium out of BNP Paribas

PARIS Mon Feb 4, 2013 9:53pm IST

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PARIS (Reuters) - A market rally has raised expectations that Belgium will sell its six billion-euro ($8.2 billion) stake in French bank BNP Paribas (BNPP.PA), leading the way for other indebted governments to recoup bank bailout funds from the 2008 financial crisis.

Banking sources say no official talks have begun but some see a deal happening within the year. A successful sale could encourage other countries with significant bank stakes such as Britain and the Netherlands to follow suit.

"It's possible that a deal will happen this year," an advisory banker familiar with the matter said. "Belgium needs the funds and there is still a bit of upside left in BNP's shares."

Belgium's economy has only seen one quarter of growth in the last six, pressuring the government to find new ways to cut the public deficit, while BNP's share price has soared more than 30 percent over the past 12 months. The STOXX Europe 600 banks index .SX7P is up 12 percent over the same period.

"Talks have not yet officially begun on this," another banker said, but added that further share gains would bring the process closer.

Politician Wouter Beke flagged a potential sale in December, telling Tijd newspaper that Belgium's aim was not to remain a shareholder of BNP and that the timing of the sale would depend on the stock market.

"It would make sense for Belgium, even if the timing is not clear," said Yohan Salleron, fund manager at Mandarine Gestion in Paris.

Belgium took its 10 percent stake at 68 euros per share in 2008 as part of BNP's rescue of collapsed Benelux bank Fortis, seen today as one of the French bank's canniest acquisitions.

BNP shares today trade almost one third below that level, meaning Belgium would actually lose money at market prices, but investors and analysts say that interest from foreign bidders willing to pay a premium or the use of a convertible bond could offset this. An extended rally could also bump up the price.

"The shares could be sold to Russian or Chinese banks ... or sold via a convertible bond," said Yannick Naud, portfolio manager at Glendevon King Asset Management. "Given the current market (rally), a strike price at 20 to 30 percent above today's levels is possible."

Cash-rich, sovereign-wealth funds from the Middle East or Asia, such as Singapore's Temasek, would be the likeliest buyers for the stake given its size, according to fund managers and advisory bankers.

Qatar was mooted as a possible investor in BNP during the euro market panic of late 2011, although the French bank at the time denied reports that discussions had begun.

Jaime Ramos Martin, investment director at Standard Life Investments, said he would consider taking part in a placement given BNP's strong capital base and the expectation it will resume normal dividend payments this year.

"I'd obviously say it depends on the price but we are positively predisposed," he said.

"I think 10 percent might be too much for a sovereign investor, but who knows? Has the market got appetite for 10 percent of BNP? I would be inclined to think, 'Yes'. It would be great to find a cornerstone investor to take 5 percent, then it's only 5 percent you need to place in the market."

The Belgian finance ministry and BNP Paribas declined to comment.

LONG ROAD

Some say BNP will not be an isolated case. Smaller Belgian bank KBC took advantage of the boom in bank shares late last year by raising capital to repay state bailout money; it will also buy back shares held by the Flemish authorities this year.

Other examples of banks that could see governments reduce their holdings if the rally continues include Dutch lender ABN Amro, Icelandic lenders and UK banks RBS (RBS.L) and Lloyds (LLOY.L) - all rescued by the state in the wake of the 2008 crisis that brought down U.S. investment bank Lehman Brothers.

"These countries are not logical owners of the stakes but the timing of the exits will vary," an advisor to sovereigns said.

The problem for some countries is that selling right now would mean losses for the taxpayer - including in the U.K., where over $100 billion was spent rescuing RBS and Lloyds - and bankers say governments may simply choose to wait it out or use a convertible bond structure to avoid unnecessary pain.

"The UK has clearly said they wouldn't want to sell these stakes unless they make a profit for the taxpayer," said Espirito Santo analyst Shailesh Raikundlia.

In some countries the state is having to get even deeper in hock to its banking sector, rather than the reverse. The Netherlands nationalised SNS Reaal in a $14 billion rescue on Friday, Italy's scandal-ridden Monte Paschi (BMPS.MI) has asked for aid and Franco-Belgian Dexia (DEXI.BR) has new guarantees.

"This is a long road back for European banks and one of the obstacles in that road is placing equity stakes," said John Bennett, director of European equities for Henderson Global Investors.

Underpinning the optimism is a benign stock market environment that may not last forever, warned Bennett.

"The window will only be open for a few months, maybe another four."

(Additional reporting by Philip Blenkinsop in Brussels and Sinead Cruise in London; Editing by Carmel Crimmins and Tom Pfeiffer)

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