Банкеръ Weekly

Briefs

SALE OF DSK BANK BROUGHT MILLIONS TO JP MORGAN

The US investment bank JP Morgan got EUR3.4MN from the privatisation of DSK Bank for its consultancy services to the seller - Bank Consolidation Company. (BCC). The amount was remitted to JP Morgan from BCC's account in the BNB on October 10, eight days after the Hungarian bank OTP paid on October 2 EUR 311.1MN to the BCC for 100% of DSK Bank's shares. Calculations show that 1.1% of that money was spent to pay the fee to JP Morgan. Is that much or not? This could become clear only if compared with another deal of a similar scale. E.g. the privatisation of BULBANK in 2000. In that deal, the BCC (headed by Peter Zhotev then) was consulted by a consortium between the audit company Arthur Andersen, the Austrian Kreditanstalt Investment Bank, and the Swiss-American credit institution Credit Swiss First Boston. After finalization of the deal, by which the Italian financial group UniCredito purchased 95% of BULBANK's shares and the German insurance giant Allianz bought 3% (the total price was EUR360MN), the consortium of consultants received USD6MN (at that time the US currency was more expensive than the euro). This was 1.7% of the price at which BULBANK was privatized, estimated by many experts as shockingly low. Unlike that deal, the privatisation of DSK Bank did not cause such remarks concerning the price. The EUR311.1MN paid by OTP exceed 2.38 times the net assets of the Bulgarian financial institution. Moreover, JP Morgan was chosen as a consultant through absolutely clear and transparent procedures. In the beginning of 2002 BCC's Boar of Directors, chaired by the Finance Minister Milen Velchev, invited a tender for choosing a consultant in DSK Bank's sale. In addition to JP Morgan, other prestigious foreign investment banks tooks part in it: the Durch ABN AMRO, the Austrian Kreditanstalt International, the US Schroeder Salomon Smith Barney, and the Japanese Diva Securities. The criteria for the choice were also announced in advance. According to Mr. Velchev, the bidders were appraised according to five indictors, each with a certain weight, for which candidates were awarded points as per a 10-grade system. The Market Positions and Overall Experience in the Sale of Financial Institutions indicator had a 15% weight, and the bidders were evaluated according to the number and kind of deals they consulted. The Contract Terms indicator was given the same importance, and what mattered here were the corrections demanded by the consultant in the draft agreement, proposed by the BCC. The Technical Proposal criterion weighed 20 per cent. Here the experience and qualification of experts to be dealing with DSK Sale were appraised, as well as the offered strategy for its privatisation and the scope of the work. Presentations made by the five candidate-consultants to the BCC weighed 20% in the general ranking. The Price Offers criterion weighed most of all - 30 per cent. In end-August 2002, summarizing the effect of the above-mentioned five criteria, BCC's BoD announced JP Morgan a winner in the contest, covering 100% of the requirements. ABN AMRO ranked second with 99.79%, Kreditanstalt came next with 95.60%, followed by Schroeder Salomon Smith Barney with 90.95% and Diva Securities with 87.54 oer cent.Immediately after JP Morgan was chosen as a consultant, the Finance Minister Velchev and BCC's Executive Director Nelly Kordosvska announced that the US bank would get a fixed fee of EUR250,000 even if DSK Bank was not privatized. The next agreement was that is the saving institution was sold at a price lower than 150% of its net assets, the consultant would additionally receive EUR1.4MN. If a sale price above 150% of the bank's net assets was negotiated, then JP Morgan was promised to get an additional 1.8% bonus.Thus, after OTP paid the price for DSK Bank's shares on October 2, JP Morgan received its fixed fee of EUR 1.65MN plus a success fee of EUR1.75MN.

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