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Western Europe: Portugal - Competition Heightens - Millennium BCP's Bid For Banco BPI Will Make Competition In The Banking Sector Even More Fierce, Even If It Fails. Peter Wise Reports.

Article Excerpt
Byline: Peter WISE

Portuguese banking is about to undergo a seismic shift. The decision by Millennium Banco Comercial Portugues (BCP), the country's largest listed bank, to launch a E4.3bn takeover bid for Banco BPI, the smallest of the top five banks, is already altering the landscape of the sector several months before the final outcome is decided.

"Nothing can go back to where it was before," says Bruno Duarte, a London- based analyst at Fox-Pitt, Kelton. "Whether it succeeds or fails, the bid will have an important impact on a sector where the pressure to reduce costs to enhance revenue growth is already strong. Competition, which has been fierce, will become even more aggressive."

The highly competitive climate of Portuguese banking was reflected in BPI's robust rejection of BCP's cash offer as "wholly unacceptable". In a strongly worded defence document, BPI chairman Artur Santos Silva said: "Given BCP's record on governance, value destruction and its industrial plan, BPI shareholders should reject this option out of hand."

Mark of sophistication

The battle over BPI is a measure of the level of sophistication of Portuguese banking, which is considered the most advanced and competitive sector of the country's economy. "Portuguese banks are competing at the same level of efficiency as banks in the UK and Spain," says LuIs Bento dos Santos, a board member of Santander Totta, Portugal's third largest private sector bank.

Freed from state controls in the 1980s, liberalisation, privatisation and the opening of the market to foreign competition have obliged banks to sharpen their competitive edge much more than other, more protected sectors of the Portuguese economy. "Competitive demands have resulted in levels of efficiency that have been highly beneficial...