Foreign financial institutions took steps to dramatically increase their presence in the United States in the first half of 1999, committing $29.6 billion to buy U.S. financial companies.
That first-half volume was 50% higher than in all of 1998, and six times higher than in the first six months of last year, according to figures from Thomson Financial Securities Data Co.
Analysts attributed the surge to a globalization trend. Many companies are discovering that they are at a competitive disadvantage if they do not expand geographically, said Stephen B. Blum, a partner in the corporate finance group of KPMG Peat Marwick LLP. The result is that "many foreign companies are turning to the U.S."
"We may not be the fastest-growing market in the world, but boy, are we stable," Mr. Blum added.
Pricey deals for U.S. banks by foreign organizations helped fuel the increase, but many of the deals were in the insurance sector.
Less important were deals by foreign investment banks and brokers, which agreed to buy relatively small U.S. companies in those fields. The biggest such deal was Credit Suisse's $650 million agreement to form a joint venture with Warburg Pincus Asset Management.
The biggest announced deals by foreigners for U.S. banks, both still pending, were London-based HSBC Group's $10.3 billion agreement with Republic New York Corp., and Citizens Financial Group Inc.'s $1.4 billion deal with UST Corp. in Boston. Citizens is owned by Royal Bank of Scotland.
Pending cross-border insurance deals include Aegon NV of the Netherlands' proposed $10.8 billion purchase of TransAmerica Corp., and Ace Ltd. of Bermuda's $3.4 billion deal for Cigna Corp.
Analysts say foreign insurance companies are eager to be in the U.S. market because it is the world's largest and the most efficient. U.S. companies control 32% of the $2.1 trillion global insurance premium market, according to recent numbers compiled by the economic and consulting division of Swiss Re, a Swiss insurance company.
It is not surprising that insurance deals outnumber bank deals, said H. Rodgin Cohen, a partner in the law firm Sullivan & Cromwell. "There are not that many foreign banks big enough to buy the largest U.S. banks, but there are many large foreign insurers that can buy major U.S. insurance companies," he said.
Mr. Cohen also said that the track record of foreign banks buying U.S. banks has been "at best, mixed."
In one example, National Westminster Bank Ltd. built a U.S. presence beginning with National Bank of North America in 1979. Natwest sold to Fleet Financial Group in 1996.
"There were problems with these kinds of deals," Mr. Cohen said. "Problems are difficult to fix if you are next door, but they become much more difficult to fix when you are 3,000 miles away."
The appetite of U.S. financial institutions to acquire their foreign counterparts also increased during the first half of 1999, but it was not as voracious as that of the foreign financial companies, according to Securities Data, which like American Banker is owned by Thomson Financial Corp.
In the first half, U.S. financial institutions inked $12 billion in deals to acquire foreign financial institutions, up from $7 billion in the first half of last year. The full-year 1998 volume was $10.6 billion.
U.S. investment banks' deals included Goldman Sachs & Co.'s roughly 20% stake in Korea's Kookmin Bank for $500 million, and Morgan Stanley Dean Witter's & Co. proposed $340 million acquisition of the Spanish broker Asesores Bursatiles SA.
The biggest deal announced was General Electric Capital Corp.'s $6.5 billion purchase of Japan Leasing Corp. The deal was completed in March.
U.S. insurance companies were responsible for 14 of a total of 52 deals in which U.S. financial institutions agreed to buy foreign institutions, but each transaction was relatively small. The largest was American International Group's deal to buy an Indonesian insurer, Asuranfi Lippo Life, for $250 million.
While insurers kept busy with cross-border acquisitions, U.S. commercial banks were mostly quiet. Bank of New York Co.'s proposed purchase of Royal Bank of Scotland's trust bank for an undisclosed sum was the only announced offshore deal by a U.S. bank in the first half.
"U.S. banks are busy focusing on building their national franchises," said Milton Berlinski, an investment banker at Goldman Sachs & Co. "Once national dominance is established, those kinds of deals are likely to be more frequent."
U.S. bank managements are also guided by what the stock market will endorse, and the market has not had the opportunity to send favorable signals, said Sanjiv Sobti, a managing director in the financial institutions group at J.P. Morgan & Co.