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. Last Updated: 07/27/2016

Banca Intesa Acquires KMB-Bank for $90M

Banca Intesa, Italy's No. 1 bank by assets, has purchased a controlling stake in KMB-Bank for $90 million.

Under the deal, Banca Intesa will own a 75 percent minus one share stake in KMB, the Italian lender said in a statement Thursday.

Although KMB is only Russia's 85th largest bank by assets, its clean reputation and Western ownership reportedly attracted other bidders such as Deutsche Bank and BNP-Paribas.

"It's our platform for investing in Russia," Giovanni Boccolini, head of Banca Intesa's international subsidiaries, told reporters on Thursday. "We are going to assist development of small and medium-sized businesses in Russia."

Established by the European Bank for Reconstruction and Development after the 1998 financial crisis, KMB is a leading provider of banking services for entrepreneurs and small businesses.

KMB covers 24 of the country's 89 regions with over 50 branches and sub-branches, Banca Intesa and the EBRD said.

The Italian banking giant first entered the Russian market at the end of 2003, focusing mostly on big corporate clients.

The transaction is expected to be finalized later this summer, when the bank will be renamed Intesa KMB.

Banca Intesa plans to increase the number of regional branches.

Richard Hainsworth, CEO of RusRating, praised the deal, saying many small and medium-sized enterprises in Moscow still do not have access to affordable banking services.

"If you go outside Moscow there is even less financing available," he said, adding that the country's growing retail banking produces significant profits.

"That is what gives a rationale for paying almost four times the book value," he said.

"We were surprised over the amount of interest," said Robert Adams, director for investment banking with Renaissance Capital, which acted as an adviser on the deal. Fifty foreign and local banks initially showed interest, he said.

Under KMB's new ownership structure, the EBRD will be the only other shareholder, with a blocking stake of 25 percent plus one share. Banca Intesa will have the option to buy out EBRD after 2010, the Italian bank said.

Banca Intesa bought out the Soros Economic Development Fund, the Dutch foundation Triodos Doen and German bank DEG.

Russia has more than 1,200 banks, with the major players still in state possession. Foreigners are prohibited from opening branches in Russia but can open 100 percent owned subsidiaries.

Last summer, General Electric Consumer Finance, the retail lending unit of General Electric, bought DeltaBank for $150 million.

The KMB acquisition is part of Banca Intesa's expansion into the promising markets of Central and Eastern Europe. Banca Intesa owns banks in Slovakia, Croatia and Hungary, and the acquisition of the second-largest bank in Serbia and Montenegro and a bank in Bosnia and Herzegovina are under way, the bank said. Twelve percent of Banca Intesa's earnings come from Central and Eastern Europe.

Sergei Yastrzhembsky, President Vladimir Putin's special envoy to the European Union, called the acquisition an "indisputable breakthrough in Russian-Italian economic relations."

Viktor Gerashchenko, Yukos board chairman and a former Central Bank head, said Banca Intesa's expansion into Russia's consumer lending market was a "positive" sign for the country's small and medium-sized businesses.