European Banks to Suitors: Hands Off the U.S.

17.02.2012 14:18


WSJ: European banks are keeping "for sale" signs off the lawns of their U.S. branches.
Despite deep financial problems that are forcing them to unload assets around the world, most big European banks consider their U.S. retail divisions to be among their most stable operations. That means—at least for now—big banks such as Banco Santander SA, Royal Bank of Scotland Group PLC and Banco Bilbao Vizcaya Argentaria SA want to hang onto these businesses.
This reflects a big change from just a couple of years ago, when European banks were widely expected to unload their U.S. assets. Only a couple of small deals have happened: Allied Irish Banks PLC sold its 22% stake in M&T Bank Corp. in late 2010 and HSBC Holdings PLC dumped its U.S. credit-card portfolio and some branches.
The resolve to keep the businesses in European hands is disappointing to potential buyers from Canada and Japan seeking to bulk up their U.S. presence. In recent months, BNP Paribas SA of France has fielded informal offers for its U.S. subsidiary, San Francisco-based Bank of the West, from at least two North American banks, according to people familiar with the matter. BNP rejected the offers as too low.
Bank of the West has roughly 650 branches in 19 Western and Midwestern states, and about $62 billion in assets. A spokeswoman said the French bank considers the subsidiary to be "a core asset." BNP also owns First Hawaiian Bank, which has $15.4 billion in assets and 64 branches.
One of the reasons that the U.S. assets are staying put is because they now look to be safer bets than businesses closer to home. Fewer loans are souring and the industry's capital crunch appears to mostly under control for many large U.S. banks.
Further reducing the appeal of a sale: U.S. regulators would likely frown on big domestic banks bulking up through acquisitions. Still, there remains intense interest from Wall Street deal makers. "The whole investment-banking community has been circling these names," said one banker who focuses on financial institutions.
Most of the U.S. assets of European banks are dwarfed by their sprawling parents. Banco Santander's U.S. subsidiary, Sovereign Bank, for instance, represented 6% of Santander's profit in the year ended Dec. 31. Santander wants to hang onto Sovereign, according to people familiar with the bank's strategy. Sovereign has more than $75 billion in assets and more than 700 branches from Maine to Maryland.
RBS, the European bank with the biggest U.S. presence, has no plans to sell its Citizens Financial Group franchise, according to a person close to the British bank. The Providence, R.I., company has $130 billion in assets and more than 1,500 branches in 12 states.
BBVA, with $64 billion in assets and 700 branches in seven states, also is holding fast. "We are as committed as ever to the U.S. market," Manolo Sanchez, chief executive of BBVA Compass, said in an interview.
To be sure, the U.S. banking industry isn't exactly going gangbusters. Low interest rates and a raft of new regulations are draining revenue, and new loan generation is anemic, forcing banks of all sizes to cut costs in an attempt to pump up profits. But compared with Europe, the U.S. banking business isn't so bad.
Across Europe, capital-strapped banks are selling vast pieces of their operations. Last month, for example, RBS agreed to sell its aircraft-leasing unit to a group led by Japan's Sumitomo Mitsui Financial Group Inc. for roughly $7 billion.
Santander has filled a €15 billion ($19.6 billion) capital hole, partly by selling all or pieces of businesses in Colombia, Brazil and Chile. It also bulked up its capital late last year by selling 35% of its U.S. auto-financing business to private-equity firms.
Executives say they remain committed to Sovereign, which recently opened the door to potential acquisitions by converting to a bank holding company from a savings bank. Although unlikely to give up control of Sovereign, Santander could seek to combine it with another institution. That is what it tried two years ago when it held talks with M&T Bank of Buffalo. Those discussions ultimately failed.
A spokesman for Boston-based Sovereign declined to comment.
At BBVA, top executives concede that they dove into the U.S. retail-banking business at the worst possible time. It bought Compass Bancshares in early 2007 for $9.5 billion, just before the crisis hit. The business's diminished value last month prompted BBVA to take a roughly $1.3 billion write-down.
Despite that setback, BBVA executives consider the U.S. to be one of its two main growth areas, along with Turkey. The company is hunting for acquisitions in the southern U.S., according to a person familiar with the matter.
Bank investors and analysts also have speculated about the future of Citizens, acquired by RBS in 1988. The British government owns 83% of RBS which announced steep cuts in its investment bank last month. People familiar with the situation said that Citizens is considered to be a stabilizing factor for RBS because it mostly operates in areas that weren't devastated by the housing bust.
Sara Schaefer Muñoz contributed to this article.
Write to Robin Sidel