$2.4B Merger To Form Global Internet Banking Alliance

Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) and Spanish ISP Terra Networks announced a $2.4 billion (US$) merger today that will create a global Internet banking group with Irish Internet-only bank First-e.

The Spanish companies intend to merge First-e with their recently-developed Uno-e venture to create an Internet banking group known as Unofirst Group. First-e has 100,000 subscribers in the UK, while Terra Network’s number of subscribers reportedly grew exponentially last year to 1.3 million.

$280M in Cash and $550M in Capital

BBVA, Spain’s second-largest bank by assets, and Terra Network, a recent spin-off of parent Telefonica, said they will pay First-e parent company Enba plc $280 million in cash and give it a 32.5 percent stake in the new venture.

The Spanish companies said that the new venture could tap into nearly $500 million in available capital to branch out on an expansion route that encompasses the rest of Europe, Latin America, the United States and Asia.

Once the deal is completed, BBVA and Terra Networks will own 67.5 percent of Unofirst, with other shareholders to include Capital Z, CGU, Morgan Stanley Dean Witter, PaineWebber Capital, Vertex and venture capital firm Apax Partners.

Global Plans

“This is a significant move in e-commerce financial services,” said Unofirst Group Executive Chairman Manuel Gallatas. “We will be able to use the Internet and new channels to create the world’s first truly global online operation, offering a range of competitive products and services unparalleled in the traditional terrestrial model.”

Company CEO Dr. Gerhard Huber added that Unofirst will likely launch an IPO in the future so that it can raise enough money for its customer acquisition strategy.

“Being on the Internet is becoming a survival issue for banks,” said Philippe Ricarte, an analyst at KBC Securities in Paris. “It’s important to be first in this type of accord because there may not be room for everybody.”

The planned venture is highly ambitious for any company, let alone one with a very short Internet shelf life. BBVA’s Uno-e venture is still piloting in Spain and expects to open for business later this month.

Awaiting First Regulatory Approval

In addition to having little Internet banking experience, the Spanish companies are still waiting for approval from Spanish regulators for their alliance last month. Each firm took a stake in the other and announced plans to launch an online banking venture.

Nonetheless, the Unofirst venture has some clear objectives. The companies said it will offer current accounts, low-cost brokerage services, IPO-dealing services and a comparative shopping service for financial products.

They added that the new firm will set up in the UK, Spain and Germany, and intends to expand to Portugal, France, Italy and Central European countries before embarking on a round-the-world expansion.

Euro Banking on Net Growing Fast

During the last half of 1999, the number of European Internet banking sites doubled to more than 1200. Most existing European financial institutions have either announced new online banking initiatives or indicated that they are planning such moves.

While current discrepancies in laws from country to country still pose problems for banks that would cross borders, Unofirst Group said it expects to partner with existing institutions to circumvent some of those obstacles.