HSBC Seen As the Top Contender in Natwest Sale

HSBC Holdings, the London-based parent of Marine Midland Banks in Buffalo, has emerged as the likeliest buyer for most of the U.S. banking operation of National Westminster Bank PLC, say sources close to Marine Midland.

Spokesmen for HSBC and Natwest declined to comment, as a matter of policy. In a recent interview, however, James H. Cleave, president and chief executive of Marine Midland, disclosed that it was looking to acquire another U.S. institution with up to $20 billion of assets. Jersey City- based National Westminster Bancorp has around $32 billion of U.S. assets.

Mr. Cleave is also chief executive of HSBC Americas Inc., the immediate parent of Marine Midland.

Natwest has indicated that it is interested in selling only its retail and middle-market operations and will retain its wholesale banking and capital markets businesses.

Analysts said HSBC, which has $315 billion of assets and sizable cash reserves, is the strongest contender among several banks said to be interested in Natwest's U.S. retail banking operations. Negotiations are being conducted in London.

Natwest is reportedly seeking between $4 billion and $6 billion for its retail banking operations in New York and New Jersey. The bank has retained Goldman, Sachs & Co. to handle the sale.

Although several banks, including Bank of New York and NationsBank, are said to be interested, analysts said they have been deterred by the need to pay cash, since a share swap with the British parent is not feasible.

Other possible contenders, such as CoreStates Financial Corp. and Fleet Financial Group, have recently announced large mergers of their own and are unlikely to make another big move soon.

In September, Natwest unexpectedly announced it was seeking a buyer for Natwest Bancorp.

"Of all the names I've heard, HSBC makes the most sense," said Elizabeth Summers, a bank analyst with Ryan, Beck & Co. in New Jersey.

"HSBC would be building on its existing franchise and no other bank, even one with $100 billion in assets, would be able to swallow the $3 billion in goodwill they would have to pay in a cash deal."

"We regard it as a realistic possibility," said Matthew Czepliewicz, a banking analyst with Salomon Brothers Inc. in London. "There's a lot complementary between HSBC's U.S. operations and Natwest Bancorp."

Marine Midland has $19 billion of assets and 320 branches across New York State. Natwest Bancorp has more than 300 branches in New York and New Jersey. A spokesman for Natwest declined to break down the bank's U.S. assets, but said the majority are in New York.

Edward J. Powers Jr., an analyst with Coburn & Meredith who formerly worked for Marine Midland, said the deal makes sense because it would extend Marine's retail presence to New Jersey. He added that Marine would also be able to diversify its revenues by gaining control of Natwest's mutual funds processing business, the third-largest in the country after State Street Boston Corp. and Bank of New York Co.

But analysts said that even though the processing business is attractive to Bank of New York, Natwest is unlikely to want to sell off its U.S. operations piecemeal.

One obstacle to a deal could be New Jersey banking law, which bars foreign banks from doing business in the state. However, HSBC could acquire Natwest's New Jersey banking operation by setting up a locally licensed subsidiary.

A bill that would authorize interstate banking and remove this restriction has been approved by New Jersey's Assembly. A similar bill, allowing a foreign bank to directly set up a branch, agency, representative office, or local subsidiary is now pending before the state Senate. Analysts said the bill is supported by Gov. Christine Todd Whitman and is expected to be approved.

Both Marine Midland and National Westminster Bancorp have been idle during the recent bank consolidation wave. Both have overcome heavy loan losses incurred in the late 1980s and early 1990s, and have returned to profitability.

For the past several years, Natwest has been reducing its retail banking operations outside Britain in favor of expanding corporate finance and investment banking.

The bank last week announced it had reached an agreement to acquire New York-based Gleacher & Co. for $135 million and named Eric Gleacher, the firm's head, chairman of Natwest Markets North America, the bank's U.S. capital markets unit.

HSBC, in contrast, has continued to develop a far-flung international commercial banking network that includes Hang Seng Bank and HongKong Bank in Hong Kong, Midland Bank PLC in the United Kingdom, and the British Bank of the Middle East.

The bank last week took another step to bolster its U.S. commercial banking operations by setting up San Francisco-based Trade Bank, a joint venture with Wells Fargo & Co. The bank has $200 million in initial assets and will focus on imports and exports from California.

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