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Bargain-Sniffing In The States


Shareholders of GreenPoint Financial Corp. (GPT) got a pleasant surprise on Feb. 4. That's the day news broke that two British banks -- HSBC Holdings PLC and Royal Bank of Scotland Group PLC -- were competing to acquire the $22 billion-in-assets savings and loan institution, New York's second-largest. Within hours, GreenPoint's stock had surged more than 10%, to $44.50, as investors bid it up in anticipation of a merger. Two days later the stock of scandal-plagued, San Francisco-based Providian Financial Corp. (PVN) also jumped after word leaked that it might be swallowed up by Britain's Barclays PLC (BCS).

North American banks, brace yourselves: The Europeans are coming. Eurobanks last went on a big U.S. commercial-bank buying binge back in the 1980s. Now they're back, driven by the cheap dollar and the fact that mergers in Europe remain difficult. France's BNP Paribas, the Netherlands' ABN Amro (ABN), and Spain's BBVA are three of the Continental banks said to be seeking purchases stateside. On Feb. 5, BNP Chief Executive Baudouin Prot said the bank is "actively searching for acquisitions" in the U.S., where it already owns Honolulu-headquartered BancWest Corp. "There are numerous possibilities of various sizes," he added.

Mergers-and-acquisitions advisers confirm the growing European appetite for U.S. banks. "Neither British nor Continental bankers have shown this much interest in North America for five years," says the corporate finance chief in the London office of a Wall Street investment bank. "We're at the beginning of a powerful new transatlantic takeover trend."

For some European observers, all of this comes as a great surprise. After all, 2004 was supposed to be the year when European banks merged with each other. Germany's Commerzbank (CRZBY) and Italy's Capitalia are just two of the Continental banks that analysts predicted would be snapped up by predators from other European countries. Many industry experts also forecast that Citigroup (C), Bank of America Corp. (BAC), and other U.S. financial-services giants would be hitting the Continental takeover trail.

CROSS-BORDER BLUES. But would-be acquirers, whether European or American, continue to be put off by rigid labor laws and political problems that traditionally bedevil cross-border mergers. "Our object [in Europe] remains to grow organically," says Emilio Bot?n, chairman of Spain's Banco Santander Central Hispano (STD). "I still don't believe that cross-border mergers between equals create value."

Nor does RBS, which had been considered a possible suitor for Commerzbank. On Feb. 3, it instead invested $2.6 billion to buy the credit-card business of Bridgeport (Conn.)-based People's Bank (PBCT). Recent merger talks between Citigroup and Deutsche Bank (DB) foundered when Deutsche Chief Executive Josef Ackermann concluded it would be too hard politically to institute the staff cuts and other cost savings that Citi wanted. "I don't expect a hostile takeover, and we are not ready for a friendly one," Ackermann said on Feb. 5.

The fact is, it's much easier to cut costs, exploit synergies, and boost shareholder value in the U.S. than in Europe, especially when a bank already has a solid U.S. base. If RBS succeeds in acquiring GreenPoint, for example, it could save millions by integrating it with Citizens Financial Group Inc., the second-largest bank in New England, which it already owns. HSBC put its name on hundreds of U.S. bank branches after acquiring Marine Midland and Republic (HBC) banks. So absorbing GreenPoint or some other New York bank would be easy. As for Barclays, it doesn't have a big U.S. retail base, but it could use Providian to push its Barclaycard credit cards into the huge U.S. market.

Coming up with the cash isn't a problem for the Old World banks. Many of them have excess capital and are under pressure from shareholders to use it for acquisitions. BNP's Prot says that his bank could easily come up with $6 billion to $8 billion "to invest in creating shareholder value." Analysts calculate that RBS is generating excess capital at the rate of $4.5 billion a year.

Still, the Europeans are thinking small. They have little desire to acquire behemoths like Bank One Corp. (ONE), which recently agreed to merge with J.P. Morgan Chase & Co. (JPM) in a $58 billion deal. "We have managed to improve our capital position, but really huge-scale [acquisitions] are not possible," says ABN Amro Chief Executive Rijkman Groenink. Adds Martin Cross, a banking analyst at Teather & Greenwood, a London stockbroker: "We're mainly expecting small and medium-size deals." Apart from GreenPoint and Providian, analysts say other possible targets in the U.S. include Cleveland-based Charter One Financial, New Jersey's Commerce Bancorp, Comerica of Michigan (CMA), and South Carolina's South Financial Group.

Even the smaller U.S. banks don't come cheap. Merger mania has helped push the average stock price of mid-cap banks up some 25% over the past six months. But the strength of British sterling and the euro helps. BBVA (BBC) Chief Executive Francisco Gonz?lez says the strong euro was a factor in the bank's Feb. 2 decision to spend $4.2 billion to buy the 41% of Mexico's Bancomer that it didn't already own. "We wouldn't be able to pay as much if the euro wasn't so high," he says. The weak dollar also makes it easier for European predators to outbid U.S. rivals.

Europeans with long enough memories will manage any U.S. acquisitions carefully. Going back to the 1980s, Euro-American mergers have been plagued with disaster. Only two years ago, Allied Irish Banks PLC (AIB) lost almost $700 million after Allfirst Financial Inc., its Maryland-based subsidiary, was laid low by the illicit deals of a rogue foreign-currency trader.

But some European banks have learned from their mistakes. HSBC, ABN Amro, and RBS are three that analysts say have made a success of their U.S. operations. What's more, they are focusing on businesses like credit cards, mortgages, and consumer lending, where they have the expertise needed to make solid returns in a highly competitive market. "These are the businesses they're most comfortable with," says Teather & Greenwood's Cross. With Europe looking dismal, it looks like transatlantic flights are going to be loaded with a lot of profit- hungry bankers. By David Fairlamb in Frankfurt


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