Banking On U.S. Acquisitions: European financial institutions, their growth stymied at home, are targeting U.S. retail acquisitions

CFO: Magazine for Senior Financial Executives,  Feb, 2003  by Ian Rowley

• E-mail
• Print
• Link

But most experts think the European banks have learned valuable lessons from the earlier merger wave, and suggest that U.S. customers might not be so unhappy with the results of the new mergers. European banks now are aiming to acquire more retail banking operations, for example, rather than the higher-risk corporate-bank services that were often sought before.

Steve Elliott, senior vice chairman at Mellon Financial and its former finance chief, is one who believes that European banks are benefiting from the retailing focus. Elliott, whose final task as Mellon CFO in December 2001 was to help with the sale of its retail franchise to RBS, was impressed by the speed of Mellon's retail integration by RBS, ahead of schedule. "By focusing purely on the mass-consumer side, they're not trying to be all things to all people," he says. "When you have that singularity of purpose, you can do a fine job of pulling it off," Under terms of the Mellon-RBS agreement, Citizens gained 345 bank branches, supporting some 58,000 business clients, along with 650,000 households.

Still, Citizens has said it is eager to build up what middle-market business it did acquire, and it told the Pittsburgh Business Journal that "the reception has been very good" to Citizens' efforts so far.

European banking executives seem more willing to delegate responsibility than in the past. "While it's clear that BNP has a high level of oversight and a presence on the board, BancWest has an experienced U.S. management team running the company," notes Grigsby, a 25-year BancWest veteran.

One other lesson European banks may have learned is that many in the United States are indifferent to whether a suitor is foreign. "I don't think it's an issue," says Grigsby, who has no problems cutting deals, and considers the mergers mainly an injection of European capital. And indeed, these latest bank acquisitions by Europeans appear to be getting better reviews from corporate clients.

SOME CAVEATS

Still, there is bound to be resistance from some quarters of the U.S. banking industry, perhaps led by FleetBoston. And some defensive mergers could result, although not everyone agrees on that scenario. "I don't think we're going to see a lot of [mergers just] because a few European banks have come in and decided to make some acquisitions," says Lawrence White, an economics professor at New York University's Stern School of Business.

For one thing, few domestic buyers seem willing or able to do large deals right now. Citigroup did complete a $5.8 billion acquisition of Golden State Bancorp in November. But the last large U.S. retail-banking merger before that involved Charlotte, North Carolina-based Wachovia and First Union, in 2001.

A worsening U.S. economy, of course, could dampen all bank-merger activity here. Analysts say the low price HSBC paid for Household reflected fears of a "double-dip" recession, and there are still questions of "how the economy will affect Household's subprime lending business," says Joel Gomberg, an analyst at Chicago-based William Blair & Co.