ABA Banking Journal - January 2008 - (Page 35) highest totals since SNL Financial began comprehensively collecting bank and thrift M&A data in 1989. The foreign deals are getting larger, too. The 2007 total of $22.7 billion in deal value through November already surpassed all other annual totals for foreign firms buying domestic targets. Responsible for the bulk of this total were Toronto-Dominion Bank’s $9.2 billion bid for Commerce Bancorp in October, and Spain’s Banco Bilbao Vizcaya Argent SA, which made a $10.2 billion offer for Compass Bancshares back in February. Both deals rank among the four largest foreign bank acquisitions in the SNL database. Several foreign banks already have a significant presence in the U.S. and will be able to leverage that to expand their footprint even further. In fact, when deposit market share for the entire country is examined, seven of the top 33 banks— Royal Bank of Scotland, HSBC Holdings, Toronto-Dominion, BNP Paribas, Banco Bilbao, BMO Financial, and Royal Bank of Canada—are foreign-owned. Apart from this group there are several other banks that could make a foray into the States. Grupo Financiero Banorte, the largest publicly traded bank in Mexico, has been in talks to acquire a bank based in Houston sometime this year. SNL Financial has identified Prosperity Bancshares, Franklin Bank Corp., Sterling Bancshares, MetroCorp Bancshares, Encore Bancshares, and Central Bancshares as potential targets in this deal. This year could also be a breakthrough year for Chinese banks to make a significant offer to buy a U.S. institution. So far, Bank of East Asia has been the only Chinese bank since 1989 to try its luck in an American deal with its undisclosed bid for National American Bancorp in early 2006. However, talks about deals from China have been heating up recently. In early October, UCBH Holdings announced that China’s Minsheng Bank Corp. will eventually acquire a 9.9% stake in the company. Although not an outright acquisition, strategic maneuvers like this could pave the way for a buyout down the road and could open the door for other firms. 2007. Buoyed by last year’s blockbuster transaction between Bank of America and LaSalle, its aggregate deal value of $23.4 billion ranks top amongst the states and its 19 deals are tied for first with Texas. When looking at what states might see consolidation in the future, the location of de novo banks can be a helpful indicator. Acquiring one of these banks can be a cheap, quick way to gain a foothold. Two states that had relatively down years in terms of M&A activity last year, California and Georgia, have been popular places for new banks to set up shop recently. California has seen 86 banks open since 2003, ranking first out of all states, and Georgia’s 68 ribbon cuttings are not too far behind (Florida ranks second with 75 openings). Despite this influx of new banks in these strong markets, however, there were only 13 deals announced in California last year and nine deals announced in Georgia (see “de novo” chart). These states should see more deal activity in years to come. There’s always branching If banks rule out acquisitions as a strategic alternative, they may look to grow organically by opening new branches. Taking a look at proposed branches, two of the fastest growing branch markets are the Phoenix-Mesa-Scottsdale and Houston- Sugar Land-Baytown MSAs. Proposed branches represent a potential 7.1% increase in the first case and roughly a 5.1% expansion in the second. The attractive demographics in Arizona have played a significant role in the branching effort there. Arizona leads the country in household income growth with a 31.3% increase from 2000-2007 and is second (behind Nevada) in population change over the same time period with a 24.0% growth rate. It is projected to maintain both of these positions for the next five years according to ESRI, a geographic information software company. Although organic growth would be a less likely scenario for banks to focus on in a buyer’s market, such growth does highlight some budding markets. In the future, banks that do not have the opportunity to open branches there will likely look for acquisitions to expand their footprint. If banks are evaluating their strategic alternatives for this year, they would do well to remember the advice of Kevin Rollins (who resigned from Dell earlier this year amid an SEC investigation over accounting issues and a dreadful year for the company’s performance): market share is an important measure of a successful merger, but it is important also not to disregard sound financials and performance when considering targets. BJ States with the most action Here in the U.S., Illinois joined perennial M&A powerhouses Texas and Florida as a feeding ground for M&A activity in www.ababj.com/subscribe.html ABA BANKING JOURNAL/ABA BANKING JOURNAL/JANUARY 2008 35 http://www.sema4inc.com http://www.ababj.com/subscribe.html
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