Merger
and acquisition (M&A) activity has accelerated in the US
banking sector, thanks to two well-capitalised American financial
institutions snapping up the weakened retail banking businesses of
international rivals and shaking up the ranking of the
country’s biggest banks (see chart, right) in the
process.
First, Capital One emerged as
the winning bidder for Dutch lender ING’s US online banking unit
ING Direct, in a deal worth $9bn.
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Then, PNC beat off interest
from local rival BB&T to buy Royal Bank of Canada’s (RBC)
loss-making US retail banking unit for about $3.5bn. The two
acquisitions are a sign M&A has returned, although analysts say
it is still nowhere near the pre-2008 crisis levels.
Capital One’s acquisition of
ING Direct will catapult it from the eighth-largest bank in the US
by deposits into the top five, trailing only behind Bank of
America, Wells Fargo, JPMorgan Chase and Citigroup.
ING’s divestiture of its
online banking business in the US market was ordered by the
European Commission following ING’s receipt of a €10bn ($14bn)
bailout by the Dutch government. The deadline for selling then unit
was actually set for 2013.
ING will receive $6.2bn in
cash and the remaining amount in shares of Capital One, which
amount to 55.9m shares and a 9.9% stake in Capital One. ING will
thus become the largest shareholder in the 1,000
branch-strong-lender. ING Direct’s US business returned to profit
in fiscal 2010, with a pre-tax income of €648m versus a pre-tax
loss of €7m in the previous year. Capital One, which at the end of
the first quarter had a total deposit base of $124.4bn, is also
rumoured to be a bidder for HSBC’s US credit card business. HSBC
CEO Stuart Gulliver is determined to dispose of the business as
part of his twin focus on more profitable markets and cutting
costs.
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By GlobalData
Meanwhile,
PNC’s existing 2,500-strong branch network, combined with RBC’s 424
units, will cement its position as the country’s fifth-largest bank
by branches, with a network only 200 units less than the
fourth-biggest lender by branches, US Bancorp (see chart,
right). As part of the deal, PNC will acquire $19bn in
deposits and $16bn in loans.
PNC has weathered the
financial storm better than most US banks. In the first half of
2011, it beat analyst forecasts and doubled earnings to $1.47bn
from a year ago. However, its total deposits declined in the first
half by 6.1% to $178.8bn.
The acquisition of RBC’s US
retail branch network boosts PNC’s market penetration in areas
where it has little or no presence, including Alabama and Virginia,
as its distribution network is mostly concentrated in the North of
America, the Midwest and Florida.
US banks remain hampered by increasing regulatory
requirements for higher capital levels, which is expected to
stimulate more M&A activity.
