Bank merger fever: Fear of missing the boat
The recent banking deals involving Bank of America and J.P. Morgan are having widespread repercussions. It seems that the fear of missing out on a merger frenzy is a powerful motivator, even for deal that may not make sense.
European banks are currently worried about being dwarfed by the new American banks, according to a Wall Street Journal article ("J.P. Morgan-Bank One Deal Frustrates European Banks", 1/16/2004). A gap is opening between US banks and their European competitors. The article sees the J.P. Morgan-Bank One deal as changing the landscape, according to analysts quoted.
"This deal redefines the industry," said Gary Parr, deputy chairman of Lazard Freres & Co., who advised Bank One on the acquisition. "Universal banks everywhere face a different, much stronger competitor. The merger is an issue for every other bank in the middle and upper tiers of the market."
With the newly powerful euro, the article points out, you would expect to have European banks buying in to the US. But many European banks are hurting, and few have the confidence and resources to enter the US market. Among the few European banks with current US holdings in the industry are:
- London-based HSBC PLC (#4 in equity and capital worldwide), which in 1999 acquired Republic New York Corp., a private bank ($10 billion) and in 2002, Household international, a bank holding company ($14 billion).
- Royal Bank of Scotland (#7 in equity and capital worldwide), which owns Citizens Bank, acquired in 1988, a major bank in the Northeastern US, and has steadily gobbled up a number of small banks in that region.
- Dutch ABN Amro Holding NV (#22 in equity and capital worldwide) owns Standard Federal Bank in Michigan and LaSalle bank in Chicago, along with asset management and wholesale banking operations
These three banks are the most likely to expand their US holdings.
The WSJ article also points out that US bank Citigroup has been active in Eastern Europe, while J.P. Morgan may soon be ready to eye banks in Europe. Many in the business see an increasing number of transnational and transatlantic banks in the next decade. As with law and accounting services, worldwide banking services are becoming more and more important for serving oligopoly clients.
Southern banks merge
Meanwhile, The South Financial Group which owns Carolina Banks and Mercantile Bank (South Carolina) announced t will acquire CNB National Bank in Florida, hoping to build a new regional power. These are relatively small operations ($10 billion in assets for South Financial, less than $1 billion for CNB). But it is clear that the sense of eat or be eaten is strong, along with the idea of expanding geographical scope. Once again the big bank deals look to provide an impetus for lots of smaller deals, and, in the end, the move will make South Financial an even more tempting takeover target itself.
