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Royal Bank of Canada and ING Group both agreed to sell their U.S. banks in the past week. How many more international banks could follow their retreat? A few, experts say.
June 23 -
HSBC Holdings PLC has stepped up its retreat from the U.S. by officially putting its upstate New York retail franchise on the block in addition to its credit card portfolio.
June 16 -
With HSBC paring its U.S. operations, who would be interested in either its profitable cards business or some of its 480 branches, most of which are in sleepy upstate New York?
May 11
Take a pass.
That's the advice some observers are giving M&T Bank Corp. as it weighs whether to buy all of the roughly
Buying them would let M&T corner its hometown market of Buffalo, where it ranks No. 2 in deposits, according to the most current data.
But it would fare well if others won the prize, experts said.
It would avoid the inevitable antitrust issues and damage to its local reputation. Plus, it could still increase its roughly $10 billion of deposits poaching customers. Another buyer would have to rebrand branches and probably close some, events that often lead customers to change banks.
"M&T is one of the best operators out there," said Todd Hagerman, an analyst with Sterne Agee & Leach Inc. "Market disruption only plays into their hands."
With a sale to an out-of-towner, M&T would square off against an unfamiliar name in a market it has been in for 150 years. A merger involving an in-market bank would lead to layoffs, a touchy subject in a region with 7%-8% unemployment.
Hagerman said letting others fight for the assets would not be a bad move, because M&T is unlikely to win them anyway unless HSBC agreed to sell them to multiple parties, or at a steep discount to just one buyer. Neither prospect appeals to HSBC.
A sale to M&T is financially tricky, Hagerman said. It would risk overpaying for a number of branches that regulators would force it to sell for antitrust reasons. "The divestitures would be just too high to make the economics work" if M&T acquired all the branches, Hagerman said.
An M&T spokesman declined to say whether M&T would, or could, buy any of HSBC's branches but noted M&T's 155-year history in the region. "Whatever the future holds, M&T will remain committed … to the success of businesses and families across upstate New York."
A spokesman for HSBC declined to comment.
The branches are the legacy operation of Buffalo's Marine Midland Bank, which HSBC acquired it the 1980s and is selling because it now just wants to do business in major U.S. cities. HSBC is a top-three deposit holder in most of the region's key markets, making the branches a valuable source of cheap funding, experts said.
The ideal move for M&T would be to acquire pockets of HSBC branches in markets where the Justice Department would not have an issue, such as Syracuse or Albany.
But HSBC's ideal is to find a single buyer. There are a handful of other large banks strong enough to do a deal, experts say, though whether they want to expand in a relatively slow-growth market is a question mark. This group includes Toronto-Dominion Bank, First Niagara Financial Group Inc. of Buffalo, People's United Financial Inc. of Bridgeport, Conn., and New York Community Bancorp Inc.
If it were the sole buyer, M&T would face anti-competition issues in at least four markets that make up the bulk of HSBC's footprint, according to regulatory data: Buffalo, Rochester, Jamestown and Binghamton. It would have to divest an unknown number of HSBC's 115 branches and more than $16 billion of deposits in those four markets, according to regulatory data measuring market concentration. That complicates the finances of a deal. A small number of branches means smaller cost savings. The mandate to sell a large number of branches means they might not fetch the best price.
There are other issues. For instance, HSBC has 5,000 employees at more than 60 branches in the Buffalo area. Its announcement in May that it would consider selling the upstate offices stirred local concerns about layoffs.
M&T prides itself on being a source of local stability. It has been winning depositors and business clients from HSBC for two years on that pitch. Though M&T is considered a deft integrator, a disruptive merger could tarnish its hometown image.
It also does not need to buy HSBC to increase its upstate market share.
M&T has been gaining on HSBC in the Buffalo area, the region's largest market, according to federal deposit data. Its market share has increased for two consecutive years in Buffalo as HSBC has been bogged down with big losses on subprime loans. M&T is No.1 in Rochester and No. 2 in Syracuse.
What would it mean for M&T if others buy HSBC's branches?
Though Toronto-Dominion is a formidable competitor, M&T would have better name recognition, as the Toronto company only has a few branches in and around Albany. M&T could also benefit from suspicions over a once-venerated local institution being passed off to yet another international conglomerate.
A sale to First Niagara would be a boon for that company, and not entirely bad for M&T. Having the market dominated by two large, healthy banks would be good for the economy. It would also ensure that loan and deposit prices stay rational as the economy rebounds.
There would be market disruption in a sale to First Niagara, which would also face complications as the sole buyer. It would have to make divestitures in Buffalo, too. It would also have to prove to regulators and investors that it could handle two large and potentially distracting integrations at the same time. It bought NewAlliance Bancshares Inc. of New Haven, Conn., in May.
