November 2, 2011

Will European Banks Be Forced to Unload U.S. Assets?

Report suggests BNP Paribas’ BancWest Corp is ripe for the picking

The ECB building in Frankurt, Germany. (Photo: AP) The ECB building in Frankurt, Germany. (Photo: AP)

With the European debt crisis keeping the Continent’s large banks under intense pressure, a new report predicts some of these financial institutions will be forced to unload their U.S. subsidiaries, creating attractive investments for well-capitalized U.S. banks.

The report by SNL Financial analysts Robb Soukup and Tyler Hall suggests that last week’s Eurozone Greek rescue plan, now called into question by the Greek government’s call for a referendum, may be inadequate to address European banks’ capital shortfalls. The analysis concludes “it seems likely that a number of banking giants may ultimately be forced to sell assets outside of Europe, including those in the U.S., as they look to stabilize their balance sheets amid growing uncertainty in their home markets.”

Soukup and Hall cite Dutch banking giant ING Group’s pending sale of its U.S. banking franchise ING Direct to McLean, Va.-based Capital One Financial Corp as a paradigm for such asset sales, since European regulators forced ING to restructure.

A more recent example is Allied Irish Banks’ sale last week of its commercial loan portfolio to the Blackstone Group and Wells Fargo at what The Wall Street Journal reported was a 15% to 20% discount off face value.

The SNL Financial report pegs BNP Paribas, the world’s largest banking group and heavily exposed to Greek debt, as a likely candidate to follow this model with a sale of its San Francisco-based subsidiary BancWest Corp. Soukup and Hall write:

“CEO Baudouin Prot has downplayed such reports, saying BNP plans to hold the unit and could grow it through smaller acquisitions, even though it is facing revenue headwinds. However, some sources allege that those public statements mask ambivalence about the investment at the bank and that a sale could indeed be explored if BNP decides to focus its already-strained capital toward different business lines.”

The analysis dismisses as unlikely sales by BBVA and Banco Santander of their U.S. subsidiaries saying the Spanish banking giants have become reliant on the profits these units–BBVA USA Bancshares and Sovereign Bank, respectively–are generating; the Spanish banks also show signs of investing in these franchises.

HSBC’s North American operations, with $128 billion in deposits and Citizens Financial Group, owned by Royal Bank of Scotland, are two other notable U.S.-based franchises, though the large British banks are not capital-impaired to the extent that French banks are. Germany’s Deutsche Bank, with greater Eurozone exposure, has a smaller deposit profile in the U.S., totaling $23 billion.

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