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Bank of Baroda shares slump 14%, Dena Bank and Vijaya Bank rise 10-20% after merger news

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Shares in Bank of Baroda plunged more than 14 percent on Tuesday, posting their biggest daily percent fall since January 2015, after the government announced its merger with Vijaya Bank and Dena Bank a day earlier.

Bank of Baroda shares slump 14%, Dena Bank and Vijaya Bank rise 10-20% after merger news
Shares in Bank of Baroda plunged more than 14 percent on Tuesday, posting their biggest daily percent fall since January 2015, after the government announced its merger with Vijaya Bank and Dena Bank a day earlier.
Vijaya Bank shares rose as much as 10 percent to trade at Rs 66, highest since January this year, while Dena Bank shares, the smallest of the three entity to be merged, hit upper circuit, rising as much as 19.81 percent to Rs 19.05.
Dena Bank share's near 20 percent rally was the biggest daily percent gain since January 2008.
Brokerages' views on the big-ticket merger have been mixed so far. UBS sees no major impact over the medium term and says it would offer operating cost and cross sell synergies. UBS maintains "Buy" rating on Bank of Baroda at a target price of Rs 220 per share.
Here's a quick check on analysts' stance on the proposed merger:
  • Deutsche Bank has downgraded Bank of Baroda to "Hold" rating, cutting target price to Rs 145 from Rs 180, as it sees near term risk to increase.
  • IDFC Securities believes Bank of Baroda is in for a de-rating post the merger announcement, while CIMB maintains an "Add" rating on Bank of Baroda with a target price of Rs 220 per share.
  • Macquarie views the merger as negative for Bank of Baroda shareholders in the near term, but nonetheless a step in the right direction. "A larger concern is that it reignites fears that other large banks may get saddled with small banks," the report said.
  • Credit Suisse has downgraded Bank of Baroda to "Underperform" from "Outperform," cutting target to Rs 120 from Rs 184 per share.
  • Morgan Stanley sees the merger as positive for the sector, as the government's intent to address the weakest link in banking sector is a key positive.
  • PhillipCap views the whole exercise as a bailout package for Dena Bank. It sees a 20-25 percent correction for Bank of Baroda and Vijaya Bank as a best case possibility. Turnaround story of Bank of Baroda will take a backstage here on, says PhillipCap.
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