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The central bank's senior officer loan survey shows that while U.S. banks have made loans to European banks or their affiliates, their exposure appears relatively low.
November 7 -
Even when the overseas problem gets fixed, capital rules and other uncertainties will have to be resolved before deals really get rolling.
September 27
Cloudy, with a chance of rainmaking from foreign banks shedding assets.
That is the forecast for bank mergers next year, dealmakers from Deutsche Bank, RBC Capital Markets and other M&A advisory outfits said Wednesday. They spoke at a banking conference in New York sponsored by Mergermarket Ltd.
The logjam in normal bank-to-bank mergers will not break until Europe solves its debt woes and U.S. regulators implement most of the banking reforms enacted last year, they said. Those things could happen next month, next year or sometime in the next decade.
One thing they are more certain of is a ripening market for assets that banks in Spain, England, Ireland and France need to unload to fortify their balance sheets. Stateside banks are anxious to invest their excess cash, but either cannot or do not want to do it buying other banks right now.
"We expect cross-border [deal activity} to continue going forward," said Eric Heaton, managing director and head of Deutsche Bank's financial institutions group in the Americas.
Certain European banks may "back off" from investing in the states, he said, while spinning off more U.S. assets because of difficulty obtaining sufficient funding. Look for more sales of assets that do not require a lot of capital, and thus can be sold at a capital gain, he said.
There are decent returns to be had buying performing loans. The returns from investing in a brick-and-mortar bank franchise are highly unpredictable. That is making foreign assets more enticing to the biggest banks, said Jerry Wiant, managing director and co-head of RBC Capital Markets' financial institutions group.
"To double down and expand your branch network in this environment, you've got to have a lot of conviction," Wiant said.
Wells Fargo & Co. in May bought the Bank of Ireland's currency exchange operations in Florida. Wells and JPMorgan Chase & Co. in August bought some U.S. commercial loans from the Irish Bank Resolution Corp., a holding company the Irish government created to merge two troubled banks.
Large bank mergers are off the table "for quite some time," said Gary Howe, managing director and head of Lazard Ltd.'s financial institutions group in North America.
Regulators are reluctant to bless any big deals for political and economic reasons. Publicly traded banks are trading so cheaply that nobody wants to sell right now anyway.
"Anyone who wants to sell can't — not at a price that makes sense," Howe said, later adding that "the real challenge is that most banks are trading at book or [just] above book."
Other hurdles to doing deals are political, said Jay Langan, a partner in Deloitte & Touche LLP's financial services group.
It is an election year. If Republicans take the White House and hold the House, they could be in position to repeal some of the reforms curbing bank profits. That uncertainty could keep some buyers and sellers on the sidelines until after next November.
"This year, regulatory [uncertainty] was the wild card," Langan said. "Next year, political [uncertainty] will be the wild card."
Joseph Vitale, a partner with law firm Schulte Roth & Zabel LLP, said key agencies are moving painfully slowly in implementing most of the rule changes mandated by the Dodd-Frank Act, he said. That could mean another anemic year for mergers and acquisitions involving open banks.
There have been 18 cross-border bank deals worth nearly $17 billion so far in 2011, a lower volume but higher cumulative value of deals than over the same time in 2010, according to Bloomberg.
