Vantiv/Worldpay merger; ‘Tough spell’ for banks

Breaking News
Worldpay deal: Worldpay Group, the U.K.’s leading payments processor, said it agreed in principle to accept a buyout offer from Vantiv, a rival American credit card processor.

Vantiv beat out an offer from JPMorgan Chase.

“The deal, if successful, would create a trans-Atlantic payments processing giant with a combined market value of more than $20 billion,” the Wall Street Journal reported. “Worldpay is particularly strong in the U.K. and the U.S., processing millions of payments daily in stores, online and on mobile phones.”

The agreement leaves room for the bank to make a counteroffer, although JPM said it is out of the bidding.

Both Vantiv and JPM were interested in Worldpay’s “European footprint, where it is a leader in providing the technology that allows businesses to accept card payments and online transactions from customers,” the Financial Times says. The softening of the pound following the Brexit vote made Worldplay ripe for a takeover, the paper says.

“The expression of interest by the biggest U.S. bank by assets comes just days after JPMorgan and peers were given a regulatory green light to return billions of dollars of capital to shareholders via increased dividends and share buybacks,” the Journal notes. It also said a deal by JPM could potentially be “one of the biggest deals for a U.S. bank since the financial crisis and reflects banks’ growing confidence in a shifting regulatory environment.”

A deal with Vantiv “would expand the geographic footprint of the Cincinnati-based company,” the New York Times observes, while a JPM deal “would bolster the processing power of the bank’s credit and debit cards business.”

The payments sector “is seen as ripe for consolidation,” the Journal reports in a separate article. And this “relatively obscure business of payments technology and infrastructure may have Jamie Dimon’s animal spirits flowing.”

Simon Dawson/Bloomberg

Nearly nine out of 10 banks don’t have a formal payments strategy, and seven out of 10 don’t analyze their payments data to gain insights into customer behavior, according to an American Bankers Association survey.

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Wall Street Journal
Kind of a drag: Banks got a lift at the end of June after passing the Federal Reserve’s stress tests but face an upcoming “tough spell” from “challenging lending and interest-rate conditions.”

“Those trends threaten to drag on banks’ performance in coming months, a potential counterweight to the higher dividends and share buybacks many banks announced last week,” the paper comments. Business lending growth is still weak, while long-term interest rates remain near historically low levels despite recent increases.

Financial Times
More vigilance: The Bank of England has ordered British banks to show they are “addressing concerns about the growing riskiness of their lending” after finding some “are being too complacent in their assessment of potential losses in their loan portfolios.”

“The regulator said the capacity of certain banks to accommodate increased losses has declined as the interest charged on lending and the amount of capital they hold have fallen,” the paper reports.

Quotable
“We’ve seen with the recent stress-test results that the regulators have clearly indicated a more comfortable position with banks’ returning and using excess capital right now. And if you can just return it to your shareholders then why can’t you use it for strategic acquisitions? In some ways that’s a better way to use it: shore up your business model in a traditional space.” — Douglas Landy, a partner at Milbank, Tweed, Hadley & McCloy.