In fact, while the partial nationalization of Spain's
shows that some mid-sized European banks are facing a crucible, Europe's biggest banking giants may not have their back against the wall and be forced to sell assets at any price, even as sovereign debt woes, ratings downgrades and the prospect of a Greek default linger.
"RBS, BNP Paribas, Santander and BBVA are not forced sellers (all have excess capital) and based on conversations with our European bank analysts, we believe they would only part with their US franchises on attractive terms," notes Penala of Bank of America. It's still worth exploring why some super regionals might want to explore acquisitions of European-owned U.S. bank assets.
Penala analyzed four of Europe's largest remaining U.S. assets, pointing out that Bank of the West and Compass are likely to find the strongest strategic fit. Cannon also highlighted Bank of the West as a particularly attractive asset. So how big are the assets and how could deals emerge?
RBS's Citizens Financial is the largest U.S.-based asset held by a European bank, with $129 billion in assets, followed by Santander-owned Sovereign Bank, with $78 billion in assets. BBVA Compass Bancshares and BNP Paribas-owned Bank of the West have just over $60 billion in assets.
"Given Bank of the West's size, wide ranging footprint across the western US and likely high asking price, we believe USB would be the more likely suitor if the franchise ever came for sale," writes Penala, who highlights expected synergies and the ability for US Bancorp to use its stock to pay for a deal that could be valued at two times Bank of the West's tangible book value.
Birmingham, AL-based Compass Bancshares may be the most coveted of any European-owned U.S. bank asset because of its toehold in Texas. "Texas is a desired market for expansion for many banks, and an acquisition of Compass would be a rare chance to acquire scale in the state," says Penala, citing US Bancorp and BBT as the best positioned buyers. USB could pay up to 1.5x tangible book, while BBT could pay 1.25x and still find a deal compelling, calculates Penala. "It is possible that [price to tangible book value] premiums here could prove the healthiest this cycle," adds the analyst.
After buying the U.S. assets of Canada's
for $3.45 billion in 2011, Pittsburg-based PNC Financial could enter the European bank M&A fray in a bid for Sovereign Bank, allowing it to expand its footprint in New England and wrench out cost-synergies in the Mid-Atlantic. A possible deal will be challenged on price, though, with PNC likely unable to pay more than 1.25x Sovereign's tangible book. Moreover, Penala notes that the bank may simply focus on other areas of expansion. "PNC might prefer to enhance its newly acquired SE footprint over expanding in New England."
RBS-owned Citizens Bank is the least likely of any potential bank deal, in spite of its size and the British government's urgency to reclaim billions in bailout funds that still remain with the Edinburgh, Scotland-based lender. Penala writes that potential suitors are limited to U.S. Bancorp and PNC Financial, but only at a price of roughly 1.25x tangible book , which according to the analysts' counterparts in Europe, is insufficient incentive for RBS to sell.
While superregional bank investors may not want to obsess over the prospect of European bank M&A, after years of speculation that deals would be done at fire sale prices, there is still reason for shareholders and C-suites to consider acquisitions. Although share prices have rebounded throughout the banking sector in 2012 after a forgettable 2011, the industry still lacks strong growth prospects.
With most industry players at capital levels that are far in excess of new
-mandated stress tests, M&A remains an alternative to dividend boosts and share buybacks.
Written by Antoine Gara in New York
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