International Banker

The financial markets slump has done little so far to slow cross-border merger and acquisition deals involving banks, according to a survey of third-quarter activity.

In fact, deal volume continued to grow, despite an expected slowdown.

According to information from Securities Data Co., 91 cross-border deals involving a commercial bank or bank holding company were announced in the most recent quarter.

This was 13 deals more than in the year before. The total disclosed dollar value of transactions grew as well, to $11.4 billion, from $3.26 billion a year earlier.

However, this may not be representative of the total dollar amounts involved because Securities Data's totals reflect only deals in which dollar values were available.

A slight slowdown occurred in September, but in July and August banks were still rushing to make deals, including some headline-grabbing combinations such as the Netherlands' ABN Amro's $2.1 billion deal for Brazil's Banco Real.

Observers attribute the continued interest of banks in acquiring all or pieces of financial institutions to factors that include the drop in market prices for these firms, especially in Asia.

"It would appear to be a buying opportunity," said James Rockett, a partner in the San Francisco law firm McCutchen, Doyle, Brown & Enersen LLP, which advises financial institutions on mergers.

Likewise, this may be an opportune time for banks to fulfill strategies in a particular market where prices had once seemed too steep.

"There are still a lot of banks outside the United States looking for one or more specialties that they don't have, like investment banking, asset management, or even something more well defined," said Guy Manuel, managing director at CBM Group, a consulting firm that advises foreign and domestic banks.

The foreign press recently reported that international banks are interested in buying two Hong Kong banks: Kwong On Bank, owned by Japan's Fuji Bank, and FPB Bank, owned by First Pacific Co.

But countering the lure of lower prices is the reluctance of many banks to expand their exposure to a foreign market when they are unsure how deep their own losses may run from the reverses in Russia and hedge funds.

The resignation of BankAmerica Corp. president David Coulter last week after the bank announced a $372 million writedown of an unsecured loan to a hedge fund illustrates the continuing negative impact the global financial crisis has had on banks.

The writedown came on top of $220 million in trading losses, mostly due to activity in Russia, that the bank had announced last summer.

Terms of some third-quarter deals were probably agreed to well before the worst of the international market crisis hit. A slowdown may yet show up in fourth-quarter figures or in early 1999.

As another deterrent, U.S. bank regulators have also begun to watch foreign banks' credit standards closely. "I think there's some uncertainty that credit standards aren't as sound as they would hope, and there's a reluctance to get into the unknown," Mr. Rockett said.

International Banker.

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