Europe's deepening banking crisis has acquisition-hungry U.S. bankers eyeing the stateside lenders owned by Eurozone institutions.
But it is unlikely that the four major U.S. commercial banks owned by European banks will change hands any time soon, even as their parents sell off assets elsewhere to shore up capital.
The group's most likely takeover target, BNP Paribas SA's BancWest Corp., of San Francisco, probably would not fetch enough money in today's tepid M&A market to meet its capital needs, investment bankers and analysts say.
That analysis also applies to the other three U.S. institutions whose owners are less vulnerable: Royal Bank of Scotland's Citizens Financial Group Inc., of Providence, R.I.; Banco Bilbao Vizcaya Argentaria SA's BBVA Compass Bancshares Inc., of Houston; and Banco Santander SA's Sovereign Bank, of Boston.
Exiting the states would not be a speedy solution, either: A bank sale can take nine months to a year to complete. All four U.S. units are doing well enough that their owners can justify holding on to them, at least until the global economy stabilizes.
Merger chatter centered on BancWest this week as BNP's connection to debt-ridden Italy squeezed its access to funding and decimated its shares.
BNP Chief Executive Baudouin Prot ruled out a sale of the $74 billion-asset BancWest on Wednesday in an interview with the Wall Street Journal, after announcing plans to cut $60 billion of U.S. corporate and investment banking assets by the end of next year. He said BNP is actually interested in buying more banks to merge with BancWest, which operates more than 700 branches on the West Coast, in the Midwest and in Hawaii through subsidiaries Bank of the West and First Hawaiian Bank.
BancWest and BNP's recent behavior backs up Baudouin's comments, industry experts say. BancWest, having doubled its profits in the first half of the year, launched a new marketing campaign this summer. Its in-house merger team has also continued to scout for potential deals by reaching out to local investment banks that shop community lenders.
Investment bankers say BNP has been firmly rebuffing expressions of interest in the franchise as its problems in Europe have deepened this year.
California's density and wealth make it one of the most highly coveted markets in banking. BancWest has more than 240 branches in the state and is heavily involved in relatively sound — and lucrative — lending areas, like mortgages on operator-owned business properties and agriculture loans. Its 19-state branch footprint extends from California to Iowa.
There are at least a half-dozen U.S. and foreign banks with the wherewithal and strong desire to buy BancWest, including U.S. Bancorp. of Minneapolis, and Japan's Mitsubishi UFJ Financial Group, which owns Union Bank, experts say.
"There would be tremendous interest in it," said one investment banker who advises on large bank mergers and declined to be identified to avoid upsetting a potential client. "They can sell it in whole or in part pretty easily."
The problem: BNP would likely have to settle for a steep discount, and BancWest is not the type of asset to dump in a fire sale. BancWest is not a huge profit drag, even though it is struggling like other U.S. banks to build revenue. Investors have been quick to punish banks like Comerica Inc. that have paid above-market premiums for a prize asset, one of multiple factors constraining what would-be buyers are willing to pay.
BNP bought BancWest in 2001 for $2.4 billion, or more than twice its book value.
The going price for recent spin-offs of foreign-owned banks has been about half that: Capital One Financial Corp. agreed in June to pay approximately book value for ING Group NV's online U.S. bank. Royal Bank of Canada is selling RBC Bank USA to PNC Financial Services Group Inc. for slightly less than the value of its tangible book.
Such a low valuation raises the prospect of a deal that delivers little or no capital benefit to the seller. Royal Bank of Canada expects to book a modest loss in its sale, and ING Group expects a small gain.
A spokesman for BancWest referred comments to BNP officials, who had not returned calls at presstime.
