European Banks, Eyeing U.S. Mergers, Weigh Their Options

LONDON -- The bank merger wave in the United States has some European institutions weighing whether to jump in, bankers and analysts said.

Bankers and analysts in Europe contend that the foreign banks cannot afford to stand by and see their expensively built U.S. branch networks for consumer and middle-market products undermined by the streamlined U.S. groupings likely to emerge from the industry's consolidation.

However, while some European banks might find attractive acquisition opportunities in the United States, others might see the consolidation trend as a reason to bail out of money-losing American operations.

Defending the Franchise

"Banks overseas have a tough call, but I think on balance that several won't allow their franchises in the U.S. to be eroded by powerful new banking combinations," says Ed Marrinan, London-based analyst for the Thomson BankWatch credit rating agency.

Rodney Schwartz, an analyst at Lehman Brothers in London, believes it "highly likely that European banks will become involved in the industry restructuring" represented by the slated mergers between BankAmerica Corp. and Security Pacific Corp. and Chemical Banking Corp. and Manufacturers Hanover Corp.

European and Canadian banks, rather than the Japanese banking companies with their depleted capital, are expected to be the most acquisition-hungry.

Mr. Schwartz said strong European banks had the capital resources needed to mount acquisitions and "will be aware of the fact that U.S. banking assets mostly look cheap. It seems a good time to move before the game is up."

Overseas banks with retail networks in the U.S. might feel the pressure to grow through acquisition because their competition is getting bigger. The proposed Chemical-Manufacturers merger, for example, is regarded as representing a direct threat to one of the biggest of the foreign consumer banking empires in the United States, that of National Westminster Bancorp.

NatWest's branch network is centered in New York and New Jersey where it has 263 branches versus the combined 600 offices of the new Chemical Bank, mostly in the same region, but also including some in Texas.

NatWest has spent well over $2 billion in the last decade, including $400 million of recent capital injections, to acquire and support its problem-loan-plagued U.S. unit.

Peter A. Radford, NatWest Bancorp executive vice president and head of planning, says that "clearly the competitive landscape" in U.S. banking is likely to change significantly in the wake of big bank mergers.

Size of Market Appeals

"Meantime, we believe the U.S. represents a vast market-place for financial services and we are confident that there are plenty of opportunities for banks like ours," he adds.

However, if the bank's unit continues to falter, some analysts warn that NatWest may be forced to be a seller rather than a buyer.

At the Smith New Court brokerage firm, analyst Alison Deuchars says that there's a "possibility" that NatWest Bancorp could sell its operations to a U.S. bank.

"These domestic mergers must make it very difficult, even when the bank returns to profit, for them to achieve their strategic objectives - to be a large fish in the Northeast regional banking pond," Ms. Deuchars said.

Analysts suggest among the most aggressive of the European banks looking for future acquisitions will be Holland's own big banking combination, ABN-Amro through its main unit, LaSalle National Corp. in Chicago and Allied Irish Banks, with its $7.7 billion-asset First Maryland Bancorp.

ABN-Amro proposed last month to acquire Talman Home Federal Savings and Loan, a $6 billion-asset thrift that will expand the Dutch banking group's combined American assets to $32 billion and give it 160 branches around Chicago.

First Maryland set in June agreement to buy the $1.5 billion-asset York Bank and Trust Co. in Pennsylvania from Midlantic Corp. for $130 million, in its push for regional strength in Washington, Virginia, and Maryland along with adjacent states.

Jan Kalff, a member of the managing board of ABN-Amro, concedes there will be pressure on foreign banks as a result of the merger wave, particularly for those active in New York and California.

The Dutch banker said he was happy with ABN-Amro's position in Chicago, with the Talman acquisition scheduled to make it No. 2 in the middle market in Illinois and No. 3 in terms of savings deposits.

"If the opportunity arose, we would look at [acquiring] a sound bank in one of the states contiguous to Illinois or the trust businesses of other banks, an area in which we are expanding," Mr. Kalff says.

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