Wachovia’s $7 billion capital injection on 14 April was seen as the
biggest shock in a nervous first quarter reporting season – but not
any more. News has begun circulating that both JPMorgan Chase and
Royal Bank of Scotland (RBS) are also looking to raise capital, $6
billion for JPMorgan Chase and anything up to $24 billion for RBS.
No official comment had been made by either as RBI went to
press.
For RBS, still digesting its lion share of the $103 billion ABN
AMRO take-over, the news, if correct, is a big blow to its
high-flying brand and puts serious doubt on its decision to push
for the ABN deal. RBS’s share price has collapsed; the UK group is
now worth just £36 billion ($72 billion), from £70 billion in April
last year. For JPMorgan Chase, the $6 billion is less damaging –
one source at the bank described the deal as “routine” – and the
bullish group continues to be seen as a serial acquirer of rival US
banking groups. During Washington Mutual’s $7 billion capital
issuance to TPG Capital and to other investors, also on 14 April,
it transpired WaMu had considered a merger offer from JPMorgan
Chase.
Such a deal, between the US’s third- and sixth-largest banking
groups by assets, would have transformed the US market and
propelled JPMorgan Chase into a pan-US banking titan second only to
Bank of America.
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For the $900-billion-asset Wachovia, for a long time viewed as one
of the stronger, more perceptive US banking groups, the need for
extra capital will also come as a big blow to its brand. It comes
two years after its high-profile $25.5 billion acquisition of
California-based mortgage banking giant Golden West Financial in
May 2006 – a deal that, in today’s market, is also being
reinterpreted as ill-judged.
Other takeover opportunities
In terms of first quarter results, JPMorgan Chase and Wells Fargo,
the fifth-largest US retail bank and now seen as the least damaged
by the market malaise, beat analyst expectations despite posting a
drop in profits of 50 percent and 11 percent respectively.
JPMorgan’s chairman and chief executive officer Jamie Dimon,
RBI’s CEO/Chairman of the Year (see RBI 589),
remained upbeat and said the current market turmoil and the bank’s
recent acquisition of investment bank Bear Stearns will not prevent
it pursuing other takeover opportunities. JPMorgan Chase has been
linked with a number of regional banks, including SunTrust, Regions
and Sovereign – banks that have lost around 30 percent, 40 percent
and 65 percent, respectively, of their market value over the past
year.
Wells Fargo’s revenue was up 12 percent year-on-year to $10.6
billion, with profits of $2 billion after $1.5 billion in
write-downs and a $500 million provision for future losses. But CEO
John Stumpf described the first quarter of 2008 as “one of the best
we have ever had for our mortgage business. We’re very excited
about our opportunities to continue to gain market share prudently…
when many of our competitors are struggling”.
Struggling competitors include Citi (see
News Digest), National City (see Bad times for
National City) and GE Money. GE Money’s profits fell 19
percent to $995 million compared with $1.22 billion in the same
period last year, and its poor first quarter results are likely to
reinforce GE’s commitment to redeploy capital away from mature
consumer finance markets in favour of emerging markets and its
commercial finance arm – evidenced by its asset swap deal with
Santander in Europe last month (see RBI 589). In the first
quarter, GE Money’s non-US income was up 15 percent while US profit
was down 52 percent.
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