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Hypo shares dip after deal
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July 24, 2000: 7:13 a.m. ET
HypoVereinsbank, Germany's No. 2 bank, falls after $7.3B Bank Austria buy
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LONDON (CNNfn) - Shares of HypoVereinsbank AG fell about 7 percent Monday as investors showed their disapproval of the bank's plan to buy Bank Austria in a deal worth about  7.8 billion ($7.3 billion) in stock, as Germany's second-largest bank seeks to increase its exposure to growing eastern European economies.
Munich-based HypoVereinsbank (FHVM) dropped 4.7 to 63.80 Monday in Frankfurt. The bank, which analysts have said is susceptible to the same pressures which are forcing many European banks to seek mergers or takeovers, agreed to issue 114 million new shares to buy Bank Austria, Austria's largest bank.
The drop in the buyer's shares came despite HypoVereinsbank's statement that it expects 500 million ($467 million) in annual cost savings following the takeover. Analysts said those were not new cost savings, but merely synergies derived from previous deals that Bank Austria had carried out.
Merger expenses would amount to one-time costs of about 350 million, the bank said at a news conference, while "goodwill" - effectively the sum HypoVereinsbank will pay for the Bank Austria brand - would amount to 2.9 billion.
In Vienna, shares of Bank Austria jumped 6.49, or 12 percent, to 61.48. 
The enlarged bank would have about $605 billion in assets and roughly 65,000 employees. Bank Austria shareholders are expected to receive one share of HypoVereinsbank for every Bank Austria share they own.
The deal requires the approval of the board of Bank Austria. The bank's largest shareholder is the holding company AVZ, whose supervisory board includes elected officials from the city of Vienna. The merger will also depend on getting the go-ahead from Austrian banking regulators and other authorities.
Following its takeover announcement over the weekend, HypoVereinsbank reported Monday that first-half pre-tax profits jumped to 1.15 billion ($1.1 billion) from 147 million a year earlier, helped by a big drop in the provisions it set aside for possible bad debts, strong gains in fees received from clients and rising income on the bank's own investments.
Operating profit rose to 1.1 billion in the first six months of 2000, an increase of 47 percent from a year earlier.
"The earnings weren't particularly good," said analyst Bryan Crossley of ABN Amro, who added that HypoVereinsbank shares were also weakening as investors sold its shares and bought stock in Bank Austria, as a cheaper way of getting a slice of the German bank.
"We think the deal is a good strategic fit and we don't think it's expensive, because even with a premium Bank Austria is relatively cheap," he added. "Clearly there's a good growth opportunity in eastern Europe."
But Anik Sen, an analyst with UBS Warburg Dillon Read, said the buyout alone was responsible for the drop in the stock price. Investors were reacting to Bank Austria's likely loss of its Austrian state guarantee as a borrower, which could lead to a cut in its credit rating. Sen rates HypoVereinsbank shares as a "hold". 
-- from staff and wire reports
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