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) 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) 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%.
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