LONDON — After buying up Lehman Brothers Holdings Inc.'s North American operations at the peak of the financial crisis, British bank Barclays PLC is on the prowl for another major acquisition in the U.S., according to people close to the matter.
Barclays is hunting for a retail bank that would give it more deposits and extend the presence of Barclays Capital in the U.S., these people said. The bank, in response to potential changes in banking regulation, has designated an internal team to assess possible targets, these people said. It isn't in talks with any businesses in the U.S. and no deal is imminent, they said.
The bank is also reviewing additional retail acquisitions in Western Europe, they said, which would add to recent purchases such as Citigroup Inc.'s credit-card portfolios in Portugal and Italy.
The move by Barclays to find more deposits underscores how the banking regulatory debate is driving strategic choices. Global and national rules are likely to toughen capital requirements and place a premium on deposits to strengthen liquidity, or funding, at banks.
Earlier this year, the Obama administration proposed a levy on banks, based on their holdings of liabilities other than deposits. The aim of the proposal, whose fate in Washington is uncertain, is to discourage banks from relying on so-called wholesale funding, such as bonds, as a primary source of liquidity. Instead, banks would have an incentive to stock up on plain-vanilla deposits, which tend to be more-stable sources of funding and wouldn't be taxed under the proposal.
Meanwhile, new rules being worked out by international regulators as part of the so-called Basel 3 framework would require banks to reduce their reliance on short-term funding as a percentage of their assets. For example, a Credit Suisse report said Tuesday that Barclays growth prospects could be limited if it didn't acquire more deposits. Other U.K. banks, the report said, will probably need to shed assets in order to meet the new rules.
Barclays sees a window of opportunity to expand its business, after weathering the financial crisis better than many of its rivals. It is particularly interested in expanding in the U.S. and this week is playing host to a ground-breaking ceremony for Barclays Center, a basketball arena in the Brooklyn borough of New York City.
Barclays officials believe any future growth in their loan and securities portfolios will have to be funded by corresponding growth in their retail-deposit base, said a person familiar with the matter. The bank has also said it is interested in expanding its private-wealth business.
President Robert E. Diamond Jr. is leading an assessment of possible targets in wealth management, while Barclays Chief Executive John Varley is working to size up potential retail and commercial opportunities, according to another person familiar with the matter.
Acquisition targets would seem to be plentiful, with roughly 8,000 banks in the U.S. But the vast majority are tiny, and few are large and healthy enough to likely attract attention from a giant institution such as Barclays. Already, a number of sizable banks have been snapped up in the past two years via government-induced takeovers, leaving a limited pool of remaining candidates.
Barclays officials aren't trying to get a foothold in a specific geographic market. Instead, they are more interested in acquiring a franchise with a strong branch network and deposit base, according to people familiar with the matter.
Among the large regional lenders analysts have said could be targets for large U.S. or overseas banks are SunTrust Banks Inc. (STI), an Atlanta-based lender with $120 billion of deposits and 1,700 branches across the southeastern U.S.; Fifth Third Bancorp (FITB) of Cincinnati, which has about 1,400 branches and $82 billion in deposits; and Comerica Inc., a Dallas-based bank that has more than 400 branches and about $39 billion in deposits, according to the Federal Deposit Insurance Corp.
But there is no indication those companies are for sale or have talked with Barclays.
Increasing interest in the U.S. represents a shift in the bank's retail strategy following the departure of Frederick "Frits" Seegers in November, who spearheaded a rapid expansion into emerging markets such as India and the United Arab Emirates in his role as head of the bank's Global Retail and Commercial Banking division. Seegers left in an organizational shake-up in which the corporate bank was moved under the control of Diamond, who oversees Barclays investment banking and management divisions. The bank then created a new division, Global Retail Banking, headed by former Barclaycard Chief Executive Antony Jenkins.
Jenkins, known for his prudent management of lending risk when he headed Barclaycard, has been charged with creating a "critical mass" in markets where Barclays has a significant presence, Varley said during the bank's annual results presentation in February.
"I acknowledge that we have been too aggressive in our approach to business expansion in certain emerging markets," he said.
The emerging-markets retail business posted a pre-tax loss of GBP254 million ($382.6 million), weighed down by problem loans, while operating expenses rose. Barclays's overall net profit was GBP9.39 billion for 2009, up from net of GBP4.38 billion a year earlier, reflecting a GBP6.33 billion gain from the sale of about 80% of its Barclays Global Investors and a boost from the Lehman businesses it acquired.