Foreign Firms Scoop Up Failed U.S. Banks
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By ROBIN SIDEL, PHRED DVORAK And ATSUKO FUKASE / WSJ April 23, 2010
Link to Failed Bank Table:
s.wsj.net
Some growth-hungry non-U.S. banks have a new item on their shopping lists: small banks in the U.S. that are crumbling under bad loans and the weak economy.
Toronto-Dominion Bank of Canada bought three Florida banks that failed last Friday, while Japan's Mitsubishi UFJ Financial Group Inc. acquired one in California. The four purchases increase the number of failed U.S. banks scooped up by non-U.S. banks to seven since the start of 2009. A total of 190 banks have been seized by regulators, including 50 so far this year, most of which have been bought.
International buyers are lured to broken financial institutions because, like U.S. banks, they think the worst is over for the battered U.S. banking industry. First-quarter earnings reports are adding to optimism that loan losses have peaked, even though lenders still are grappling with high loan-default rates and suffering real-estate portfolios.
As a result, competition is heating up as the Federal Deposit Insurance Corp. auctions off failing banks, according to people involved in the bidding process. "This is a good opportunity for foreign banks to get into the market in a cheap way," said Adrian Goffinet, an analyst at SNL Financial, a Charlottesville, Va., research firm.
FDIC officials say they welcome would-be foreign buyers, which are subject to the same regulatory scrutiny and rules as U.S.-based banks. "While foreign banks or those with foreign affiliates make up a small minority of overall acquirers, their participation in the bidding process helps to increase the amount that the FDIC is able to sell the failed institution for," the FDIC said in a statement.
During a 13-month period that ended in mid-February, more than half of the 160 failed-bank auctions attracted at least three bids, according to SNL. But some of the largest U.S. banks are backing away, especially from smaller targets, because such purchases are time-consuming and can be expensive to integrate into their branch networks.
That opens the door to more foreign buyers, which often see a small purchase as a way to gain a foothold in the U.S. or bulk up a small branch network.
Canada's banks, which pulled through the financial crisis in better shape than their U.S. peers, have been using their cash to shop for deals south of the border. TD, with sizable acquisitions in the Northeastern U.S. in 2004 and 2008, considers small FDIC-sponsored purchases as a cheap way to expand on the East Coast, said Ed Clark, TD's president and chief executive.
TD more than doubled its Florida presence with Friday's purchase of AmericanFirst Bank in Clermont, First Federal Bank of North Florida in Palatka, and Riverside National Bank of Florida in Fort Pierce. The three banks had combined assets of $4.7 billion, roughly equivalent to the 88th-largest U.S. bank.
TD now has 103 branches in Florida, up from 34 that it got with the purchase of Commerce Bancorp Inc., based in Cherry Hill, N.J. "These are cheaper than building branches, for sure," Mr. Clark said.
BMO Financial Group, the Canadian bank that bought Citigroup Inc.'s Diners Club business in North America in November, has also said it might look at buying small lenders in the Chicago area, where it already operates.
Royal Bank of Canada, the country's biggest bank by assets, has said it is interested in expanding its capital markets and wealth-management business outside Canada. But RBC has been struggling with profitability in its U.S. retail-banking operations, and executives are focused on fixing rather than expanding that business.
In Japan, major banks are hoping to tap U.S. markets to generate profits from wider interest margins. That would help the Japanese banks offset weak loan demand and thin interest margins at home due to Japan's near-zero interest rates.
UnionBanCal Corp., a San Francisco unit of MUFG, bought failed Tamalpais Bank. The San Rafael, Calif., bank had seven branches and $628.9 million in assets. It was the first deal in which a Japanese bank bought a failed U.S. lender through a deal with the FDIC.
MUFG, Japan's largest bank, has made little secret of its ambitions to grow in the U.S. In October 2008, the Tokyo company bought a 20% stake in Morgan Stanley for about $9 billion. MUFG is seen as especially eager for retail-bank expansion in the U.S. following its purchase of a stake in a UnionBanCal subsidiary.
Also looking for growth opportunities in the U.S. is Sumitomo Mitsui Financial Group, which has no U.S. retail-banking presence, according to people familiar with the matter.
Among U.S. banks, U.S. Bancorp, the Minneapolis buyer of a dozen failed institutions since the crisis began, now is looking at only larger deals."We did a Bank of Idaho recently this year which was a seven-branch deal in Idaho, and it was a great deal, but the contention it creates and the disruption it creates to the momentum you're building isn't worth it," Richard Davis, U.S. Bancorp's CEO, said in February.
J.P. Morgan Chase & Co. also would likely consider only a sizable acquisition, according to people familiar with its strategy. |
