This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

4 Euro Crisis Targets in U.S. Banks' Crosshairs

NEW YORK ( TheStreet) -- Four large European bank U.S. subsidiaries could be on the block following downgrades of 16 Spanish banks by Moody's Investor Service.

The downgraded Euro holding companies would not be "forced sellers," since they all have excess capital, according to Bank of America Merrill Lynch analyst Erika Penala, who said in a report on Tuesday that the European holding companies "would only part with their US franchises on attractive terms."

While it would be a pretty obvious play for European holding companies to shore up their capital by selling their strongly capitalized U.S. subsidiaries, Basel III rules may require banks "to fulfill liquidity requirements in a currency by currency basis, which would put a premium on U.S. denominated deposits for European banks," Penala said.

Investors have seen several large recent deals involving U.S. subsidiaries of foreign holding companies, including Capital One's (COF - Get Report) purchase of ING Direct (USA) from ING Groep (ING) in February for roughly $9 billion in cash and stock, which was followed on May 1 by the purchase of HSBC's $30 billion U.S. credit card portfolio for a premium of $2.6 billion.

On Friday, First Niagara Financial Group (FNFG - Get Report) of Buffalo, N.Y., expects to complete its purchase of roughly 200 HSBC branches, in a complicated deal that has included the sale of roughly 100 branches by First Niagara.

Leaving aside foreign-owned U.S. banks held by non-European companies and HSBC, here are the four largest U.S.-based foreign subsidiaries that could be on the block:

  • RBS Citizens, NA of Providence, R.I., is a subsidiary of Citizens Financial Group, which in turn is held by Royal Bank of Scotland Group PLC (RBS). The U.S. bank subsidiary had $106.9 billion in total assets, with over 1,500 branches in 12 states, while the U.S. holding company has roughly $132 billion in assets. RBS Citizens, NA was strongly capitalized as of March 31, with a Tier 1 leverage ratio of 10.09% and a total risk-based capital ratio of 13.09%, according to data supplied by Thomson Reuters Bank insight. These ratios need to be at least 5% and 10%, respectively, for most U.S. banks to be considered well-capitalized by regulators. Among the four banks listed here, "a sale of Citizens to a US regional bank appears to be the least likely," according to Penala, because of the size of the bank and what might be an "unattractive" price for RBS.
  • Sovereign Bank, NA of Wilmington, Del., is a subsidiary of Santander Holdings USA, which in turn is held by Banco Santander, SA (STD). The U.S. subsidiary bank had $78.2 billion in total assets as of March 31, with a Tier 1 leverage ratio of 11.15% and a total risk-based capital ratio of 16.45%. Penala said that a deal for Sovereign "would give an acquirer a sizeable presence in the Northeast, given the bank's number three market share in Massachusetts, number four market share in Pennsylvania and number seven market share in New Jersey."
  • Compass Bank of Birmingham, Ala., is a subsidiary of BBVA Compass Bancshares, which in turn is held by Banco Bilbao Vizcaya Argentaria, SA (BBVA).

    The U.S. bank subsidiary had $63.1 billion in total assets as of March 31, with a fourth-place deposit market share in Texas, which Penala said "may be the most coveted asset" of the four U.S. subsidiary banks listed here. Compass Bank had a Tier 1 leverage ratio of 8.83% as of March 31, with a total risk-based capital ratio of 14.24%.

  • Bank of the West of San Francisco is a subsidiary of BancWest Corp., which in turn is held by BNP Paribas SA. Bank of the West had $$62.4 billion in total assets as of March 31, with a Tier 1 leverage ratio of 11.57% and a total risk-based capital ratio of 15.45%.

The following are three U.S. bank holding companies that may be eager bidders for one or more of these four subsidiaries of foreign bank holding companies:

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
BBT $38.98 1.40%
COF $82.22 0.35%
FNFG $9.00 1.60%
PNC $93.14 1.20%
USB $43.45 1.30%

Markets

DOW 18,104.97 +80.91 0.45%
S&P 500 2,116.94 +8.65 0.41%
NASDAQ 5,023.3780 +17.9870 0.36%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs