European governments sell off €16bn in bank stocks

Over the last year, European governments have sold more than €16bn in bailed out bank stocks as they try to put an end to the effects of the global economic crisis.

The government has been able to take advantage of the share price increases due to higher interest rates by accelerating disposals of bank shares.

The governments have recovered only a fraction, if any, of the money that they invested in their domestic lenders to keep them afloat a decade ago.

Filippo Alloatti is the head of financials at Federated Hermes. He said that governments should cut losses as soon as possible, since a full recovery may not be realistic.

More disposals will be expected in the next few months. The Greek and Italian governments plan to hand over their large banks that were bailed out to the private sector before the end of this year. Meanwhile, the UK and Irish government could sell their stakes by the following year.

These sales have opened up opportunities for banks to consider taking over their competitors. UniCredit purchased a 4.5 percent share in Commerzbank for €702mn from the German Government, increasing its holding to 9 percent.

UniCredit’s chief executive Andrea Orcel stated this week that the stake-building approach could lead to a takeover. This is similar to the move UniCredit made last year when it bought the Greek lender Alpha Bank for €293mn.

In the last year, the Greek government has sold out Alpha Bank, Eurobank, and Piraeus Bank. It had previously injected €50bn to its four biggest lenders in order to support them during the long-running country’s debt crisis. The Greek government has sold €1bn worth of National Bank stock and will be selling the remaining 18% stake in the company in the next few weeks.

The UK Treasury has been the biggest seller in the last year. It has sold £5.5bn of stock to NatWest, and has reduced its share from 38.5 percent to under 18 percent since December.

In two bailouts, in 2008 and 2009, the UK government invested £45.5bn in NatWest – then known as Royal Bank of Scotland – and acquired an 84 percent stake in this business. It has been gradually selling its stake and receiving dividends since then. The remaining 18% stake is valued at around €5bn.

The Netherlands is another country that has sold its stakes. Last week, the Dutch government sold €1.2bn worth of ABN Amro stock, but it still holds a 40.5% stake in the bank, which it bailed out with €22bn in 2008.

The Irish government also raised €2.6bn in the last 12 months, by reducing from 46% to 22% its stake in AIB. AIB received €21bn taxpayer support.

The Italian Finance Ministry has decreased its stake in Monte dei Paschi di Siena since November from 64 to 27 percent, raising €1.6 billion, and may divest the remaining stake before the end of the calendar year.

In the last three years, the soaring interest rates have boosted the profits of European banks. The difference between interest received from depositors and the interest paid to borrowers is what generates profits for banks. These profits rise when interest rates increase.

Over the last year, the Euro Stoxx Banks Index, which tracks Europe’s largest lenders, has increased by nearly 30%.

Analysts predict that even though the European Central Bank is cutting interest rates, lenders’ shares will continue to increase in value.

Andrew Stimpson, analyst at Keefe, Bruyette & Woods, said: “We believe that bank equities are still too cheap, and they will slowly earn a revaluation higher, as profits prove to be more sustainable than what the market is currently assuming.”