Still more bank mergers
We note here several more in what has been a remarkable year for banking consolidation. Worldwide, over $200 billion worth of deals have been struck in the financial services industry, with a major Japanese deal still pending. The latest ones are not on the scale of the Bank of America/Fleet and J.P. Morgan Chase/BankOne deals, but they are probably reactions to those deals and others as all banks scramble to make sure they are no the losers in a game of musical chairs.
The merger mania has pervaded the financial industry down to the bottom. For example, TierOne Financial of Nebraska recently bought United National Bank. A relatively small deal ($97 million), it shows consolidation is progressing at all levels of the market. And TierOne's acquisition only makes it a more tempting target for a larger regional bank, which may in turn be snapped up by a national or a foreign bank.
TD to buy Banknorth
Canada's Toronto-Dominion Banks recently announced a deal to buy controlling interest in Banknorth, a regional bank in New England. The $3.8 billion deal gives the Canadian bank a position in the lucrative U.S. market. Banknorth has over 350 branches and TD Bank has over 1,000.
TD Bank has been eager to get into the US market. Last year it tried to merge its TD Waterhouse brokerage with American electronic broker E*Trade, though the deal finally failed.
Banknorth has been an active acquirer of community banks in New England, with recent acquisition in Massachusetts and Connecticut, as well as upstate New York. The bank is particularly strong in Maine, New Hampshire, and Vermont. The strategy of acquiring more small banks has made Banknorth a much more desirable target itself.
Other Canadian banks have made moves into the US. Royal Bank of Canada, through its North Carolina-based RBC Centura division, has recently bought several small bank chains in Florida, including Admiralty Bancorp and the operations of Provident Bancorp, as well as Eagle Bancshares in Georgia. The Bank of Montreal, which owns Harris bank in Chicago, also recently bough the online trading unit of Credit Suisse First Boston along with some local banks in Illinois.
Citigroup starts buying again
While top rivals like Bank of America, J.P. Morgan Chase, and Wachovia have made major moves lately, Citigroup has been rather quiet - until now. The company recently announced it would buy First American Bank of Texas, a regional bank with 102 branches. The move, priced at around $750 million, will double Citigroup's holdings locations in Texas, where it now has mortgage and commercial operations, but not retail banks. Citigroup would still be small in the Texas market, but there are other banks rumored to be in prospect.
Citigroup is reportedly especially interested in going after the fast-growing Latino market in Texas. It already is the owner of Grupo Financiero Banamex in Mexico, and larger Texas holdings would allow it to offer easy cross-border operations for migrants to the US.
Earlier in August Citigroup acquired the derivatives business of Knight Trading Company, a US firm that has a leader in a hot field called equity options as well as in futures. The $255 million deal enhances Citigroup's presence as a middleman in this market, which is used by large investors and companies to hedge their investments or as a highly speculative (and risky) investment.In February, Citigroup also extended its reach in Asia by acquiring KorAm Bank, a Korean lender.
Like other big banks, Citigroup is looking closer and closer at retail operations for adding expansion, after years of growing in the financial services and commercial banking sectors.
UBS / Schwab
.Swiss banking giant UBS bought the markets research and order execution division, SoundView Capital Markets, from Charles Schwab for $265 million. Ironically, Schwab bought Sound View only eight months ago, for $340 million, hoping to diversify. The sell -off is one of several moves to revive the faltering Schwab, which is losing share to online services like E*Trade and Amerishare.
The board recently brought back retired CEO Charles Schwab to run the company. He has announced that the company will concentrate on retail stock brokering, its core strength. The verdict: not enough "synergy" between the main business and the capital markets division.
The move brings UBS strongly into the equities trading business, especially for international customers.
India welcomes bank mergers
Indian Finance Minister P. Chidambaram recently announced not only that his ministry will allow mergers in the Indian bank industry but that it is actively encouraging it. In the Times of India ("Gov't will welcome bank merger proposals," 8/29/2004), he is quoted as saying: "Consolidation is the name of the game in oil and telecom sectors and I am glad that banking sector is also looking this (consolidation) as a strategy," The idea is to give Indian banks the scale to act like global banks. Already, some of the larger Indian banks have declared themselves eager to find acquisition targets at home.
In farm country
Dutch Rabobank recently agreed to acquire Nebraska-based Farm Credit Services of America, expanding its holdings in the American farm finance industry, an area that "American banks have done everything to avoid since a meltdown in the 1980s". (The Economist, "Against the grain", 8/26/2004). The move has stirred protectionist fever, with calls for Congressional investigations and a hastily assembled counter-offer from another American farm credit bank.
That's not Rabobank's first move in this area. According to the Economist article,
"Since 2002 it has purchased a bank in California, covering the farming areas inform Fresno to the Mexico border; an agricultural land finance company in Saint Louis; and an Iowa farm credit institution." It's interesting that a foreign company sees opportunity were otherwise acquisition-mad US bank companies do not.
The article explains that a big international agricultural bank can engage in selling cross-border derivatives that w ill allow farmer to hedge risk. So if drought hits in Nebraska, prices in Alberta or Brazil will probably be up, and vice versa. With the farming industry going global, the banking system that supports it is naturally going global as well.
