WOOD Flash – Islandsbanki: thoughts on Kvika’s letter on potential merger talks
Islandsbanki (ISB) has announced that it has received an offer from Kvika banki, to enter into merger talks. Kvika is an overall small player, with a stronger position in insurance and asset management than in banking. According to the release, Kvika’s motivation is to create a bank with a more optimal revenue mix. ISB’s board will review the letter to decide on the next steps this week. We believe it is premature to have a strong opinion on the merger, as key elements, such as valuation, taxation, potential synergies and the post-merger organisational structure, are unknown. We know that banks can drop the ball during mergers, and integrations are difficult to execute well. That said, we do not disagree with the main premise that the merged bank may have a more diversified revenue mix, due to Kvika’s presence in insurance and asset management. We have a HOLD rating on ISB, with a PT of ISK 120/share. The bank is trading at 9.1x P/E and 1.1x P/TBV, on our 2023E estimates.
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