Banking On U.S. Acquisitions

With growth stymied at home, European financial institutions are targeting U.S. retail acquisitions.

There’s no assurance that new deals will go through, of course — or that they will go well once they’re completed.

Several banks still feel burned by previous cross-border mergers. NatWest Bancorp — the old National Bank of North America, bought in 1979 by the UK’s National Westminster — was sold off at a considerable loss to Fleet Financial in 1996, after years of disappointing returns. And HSBC took years to turn around New York-based Marine Midland Bank, acquired in 1987. “Marine Midland was a troubled company,” says Bove. “It took at least five or six years for HSBC to get that thing under control to the point where they could run it profitably.”

Two of the earliest ripples in the current deal wave — Deutsche Bank’s 1999 purchase of Bankers Trust and Credit Suisse First Boston’s acquisition of Donaldson, Lufkin, & Jenrette — also encountered problems, including high rates of employee turnover, glitches in integrating corporate cultures, and dissatisfied customers switching allegiances. And Allied Irish Bank (AIB) actually sold its disgraced Allfirst Financial subsidiary, acquired in 1989 (when it was known as First Maryland Bancorp), to M&T Bank Corp. of Buffalo last September. AIB, which bailed out of the deal after foreign-exchange trader John Rusnak ran up nearly $700 million in unauthorized trading losses, has been accused by critics of failing to exercise enough control over Baltimore-based Allfirst. In many cases, says Ellerton, “the U.S. is a graveyard for British and other European banks’ banking capital.”

But most experts think the European banks have learned valuable lessons from the earlier merger wave, and suggest that U.S. customers might not be so unhappy with the results of the new mergers. European banks now are aiming to acquire more retail banking operations, for example, rather than the higher-risk corporate-bank services that were often sought before.

Steve Elliott, senior vice chairman at Mellon Financial and its former finance chief, is one who believes that European banks are benefiting from the retailing focus. Elliott, whose final task as Mellon CFO in December 2001 was to help with the sale of its retail franchise to RBS, was impressed by the speed of Mellon’s retail integration by RBS, ahead of schedule. “By focusing purely on the mass-consumer side, they’re not trying to be all things to all people,” he says. “When you have that singularity of purpose, you can do a fine job of pulling it off.” Under terms of the Mellon-RBS agreement, Citizens gained 345 bank branches, supporting some 58,000 business clients, along with 650,000 households.

Still, Citizens has said it is eager to build up what middle-market business it did acquire, and it told the Pittsburgh Business Journal that “the reception has been very good” to Citizens’ efforts so far.

European banking executives seem more willing to delegate responsibility than in the past. “While it’s clear that BNP has a high level of oversight and a presence on the board, BancWest has an experienced U.S. management team running the company,” notes Grigsby, a 25-year BancWest veteran.

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