The two highest-profile US banking
failures this year – the $16 billion asset Guaranty Bank and $25
billion asset Colonial Bank – have given both BBVA Compass and
BB&T respectively the chance to bolster their respective
positions in the upper echelons of the volatile US banking sector.
Dan Jones
reports.

The twin failures of Austin, Texas-based Guaranty Bank and
Montgomery, Alabama-based Colonial Bank – and their subsequent
acquisitions by BBVA Compass and BB&T, respectively – have
demonstrated that the US banking industry remains in a state of
considerable upheaval despite the absence of the kind of
high-profile collapse that came to define 2008.

Both BB&T and BBVA Compass, the US
subsidiary of Spain’s BBVA, have now considerably enlarged their
branch networks as a result of their acquisitions.

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BB&T, which acquired $22 billion in assets
and $20 billion in deposits in what is the largest purchase in its
137-year history, has added 354 banking offices to its existing
1,500-strong branch network. The deal caps a momentous time for the
group, which has capitalised on its conservative business model to
ride through the US financial crisis well and become a top 10 US
financial services group.

As of 30 June, BB&T had completed 151
acquisitions over the past 15 years, including 32 bank
acquisitions. Its main focus has been in insurance, including eight
such deals last year alone (see bar chart, below
right).

BBVA Compass, the US subsidiary of Spain’s
second largest banking group, now has over 800 branches following
the addition of Guaranty’s 164 branches – 105 in Texas and 59 in
California – to its network.

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BBVA Compass says the Guaranty acquisition,
which adds 300,000 customers to its book, creates “the 15th largest
US commercial bank”, giving it $49 billion in deposits and
operations in Texas, Alabama, Arizona, California, Florida,
Colorado and New Mexico.

In a statement, José María García Meyer,
chairman of BBVA Compass, said: “This compelling transaction makes
excellent strategic sense and represents an exciting growth
opportunity for BBVA Compass as we continue to build the leading
banking franchise in the high growth Sunbelt Region.

“The increase in our branch distribution
network further strengthens our retail banking unit while also
providing benefits to our other business lines.”

The wider context is a US financial sector
which has seen an acceleration in banking failures over the past
two months, with the total for 2009 now standing at 89. That has
had a severe impact on the Federal Deposit Insurance Corporation’s
(FDIC’s) insurance fund, which had already dwindled to $10.4
billion, its lowest level since 1992, by 30 June this year.

The 44 bank failures since then are likely to
have further depleted the pot, raising the prospect of the FDIC
imposing more fees akin to the collective $5.6 billion it raised
from the banking industry in May.

An added burden comes from the fact that the
FDIC remains on the hook for banks nominally taken off its hands.
The BBVA Compass and BB&T acquisitions are cases in point: in
both deals the agency has entered into loss-sharing agreements.

The FDIC will bear the first $2.3 billion in
losses on the BBVA Compass deal and 95 percent of the losses above
that threshold; its deal with BB&T incorporates around $15
billion of assets.

While the deals are not entirely without cost
for the two banks – BB&T subsequently announced a $750 million
capital raising, estimated that integration would cost $245 million
and stands to lose up to $1.5 billion if Colonial’s loan portfolio
sours – the FDIC itself is bearing the brunt of the expense: the
Colonial deal alone is set to cost it $2.8 billion.

New regulations governing
acquisitions

The drainage of the agency’s funds is
a principal factor in new regulations governing the acquisition of
failed institutions by private equity firms.

Proposed rules requiring investors to maintain
a Tier 1 capital ratio of 15 percent or higher subsequent to
purchasing a bank have been eased to a figure of 10 percent,
highlighting the fact that private capital will be increasingly
important in ensuring that the US banking industry – and depositors
– do not suffer the kind of traumas seen in 2008.

“The FDIC
recognises the need for additional capital in the banking system,”
said agency chairman Sheila Bair in a statement.

But this capital could just as likely
come from foreign financial institutions with existing operations
in the country as it could from outside investors based in the US,
as the BBVA Compass acquisition demonstrates.

That group of foreign banks with
existing US operations includes Spain’s Santander, France’s BNP
Paribas and Canada’s Toronto-Dominion, the latter of which has
already acknowledged the possibility of future deals.

As Ed Clark,
president and CEO of TD Bank Financial Group, said in an internal
interview: “In the marketplace today, it is possible to do
other types of acquisitions, where the government in the form of
the FDIC come in and [make a loss-sharing agreement].

“Those are the kind of deals we are looking
at.”

RBI DealWatch
RBI DealWatch tracks global financial services mergers and acquisitions, privatisations and demutualisations, flotations, divestments, share stakes, strategic alliances and joint ventures.
Country	Participants	Type/value	Description	Date
EUROPE , MIDDLE EAST, AFRICA
Global	HSBC, ING, DBS, Julius Baer	Business divestment	Dutch bancassurer ING is in the process of selling its private banking businesses as part of a drive to shed non-core assets. HSBC is being seen as the likely purchaser. Singapore’s DBS and Swiss private bank Julius Baer are also thought to be in the running for a cost of between $1 billion and $2 billion.	4 Sep
UK	Royal Bank of Scotland, Lloyds Banking Group, Northern Rock	Future stake disposal	UK chancellor Alistair Darling has indicated that the government will prevent banks with large existing UK operations from buying its stakes in Royal Bank of Scotland, Lloyds Banking Group and Northern Rock (see News Digest).	3 Sep
Poland	HSBC Poland, Alior Bank	Acquisition	Poland’s Alior Bank is to acquire the consumer finance and credit card portfolios of HSBC Poland for PLN1 billion ($346 million). HSBC Poland will now focus on its retail banking activities.	3 Sep
Denmark	Nordea, Fionia Bank	Acquisition	Nordea, the largest bank in Scandinavia, has acquired Denmark’s Fionia Bank for €121 million ($174 million). The deal, which excludes a ‘bad bank’ of assets to be held by the Danish government, will give Nordea an additional 29 branches and 75,000 household customers in the country.	31 Aug
South Africa	Absa	Stake acquisition	A group formed of regional community trusts have acquired a 5.1 percent stake in Absa, the South African bank majority owned by the UK’s Barclays (see ‘Proud to be the nation’s savings bank’). The Batho Bonke group paid ZAR1.7 billion ($219 million) for the stake.	28 Aug
UK	Lloyds Banking Group	Prospective branch closure	Lloyds Banking Group has said it is reconsidering a decision to close the 164-strong branch network of its Cheltenham & Gloucester subsidiary, without citing reasons. The bank has also confirmed it is reviewing its use of ‘counters’ in third-party outlets, a network acquired as part of its acquisition of HBOS last year.	19 Aug
Sweden	Swedbank	Rights issue	Swedbank is to raise SEK15 billion ($2.1 billion) in a share sale that it hopes will speed up its return to non-government guaranteed funding. The share sale will boost Swedbank’s core Tier 1 capital ratio from 9.8 percent to 12.1 percent.	17 Aug
Qatar, Syria	Qatar National Bank	Initial Public Offering	Qatar National Bank has said that an initial public offering for 34 percent of its Syrian unit was 1.7 times oversubscribed and raised SYP4.6 billion ($100 million) for the bank.	15 Aug
South Africa	Nedbank, Imperial Bank	Stake acquisition	South Africa’s Nedbank has purchased the 49.9 percent stake in local lender Imperial Bank it did not already own for $222 million. Nedbank said the purchase would help improve scale and profitability in its vehicle finance business.	14 Aug
Poland	Bank BPH, GE Money Bank	Merger completion	Poland’s Bank BPH and GE Money Bank, the local subsidiary of General Electric, have completed their merger after a share exchange between the two institutions. The new company, which will operate under the Bank BPH name, has 319 branches in the country.	31 Jul
Italy	Citigroup	Business closing	Citigroup is to close its consumer finance business in Italy as part of a continued drive to focus on core businesses. The business currently has 65 branches in the country.	27 Jul
THE AMERICAS
US	General	Bank failures	The number of US banks to have closed in 2009 has risen to 89 following a sharp spike in failures over the summer.	4 Sep
Brazil	Santander	Initial public offering	Banco Santander (Brazil), the Brazilian division of Spain’s Santander, is to sell up to $5 billion of stock in an initial public offering. The unit is Brazil’s third-largest private sector bank after Itaú Unibanco and Bradesco.	3 Sep
US	Federal Deposit Insurance Corporation	Regulation	The Federal Deposit Insurance Corporation (FDIC) has adopted less stringent requirements for private equity firms buying failed banks in a bid to encourage investment.	27 Aug
Brazil	Itaú Unibanco, Porto Seguro	Strategic alliance	Itaú Unibanco, the largest privately-held financial institution in South America, has entered into a strategic alliance with leading Brazilian insurer Porto Seguro. The partnership will see Itaú Unibanco distribute Porto Seguro homeowner and auto insurance products through its branch network. The bank will also take a 30 percent stake in the insurer.	23 Aug

Argentina	BNP Paribas, Santander	Acquisition	BNP Paribas is to sell its Argentinian retail banking business to Banco Santander Rio, a Brazilian unit of Spain’s Santander. The business has 17 branches and caters for 30,000 retail customers. Financial details were not disclosed.	22 Aug
US	BBVA Compass, Guaranty Bank	Acquisition	BBVA’s US subsidiary BBVA Compass has acquired the banking operations of Guaranty Bank from the FDIC, creating the 15th largest US commercial bank in the process (see Survival of the fittest).	21 Aug
US	BB&T, Colonial	Acquisition; capital raising	BB&T has purchased failed US bank Colonial BancGroup from the Federal Deposit Insurance Corporation in a loss-sharing deal (see Survival of the fittest). BB&T subsequently announced a $750 million common stock offering in a bid to boost tangible common equity and Tier 1 capital.	15 Aug
Chile	ING, Vida Chile	Disposal	Struggling Dutch bancassurer ING has offloaded its Chilean annuity and mortgages businesses to local insurer Vida Chile for an undisclosed sum.	31 Jul
Mexico	Banorte, World Bank	Stake acquisition	The World Bank’s IFC unit is to take a $150 million stake in the banking subsidiary of Mexican bank Banorte, according to Banorte chief executive Alejandro Valenzuela.	23 Jul
US	People’s United Financial	Potential acquisition	Connecticut-based US bank People’s United Financial has said it is open to Federal Deposit Insurance Corporation-assisted deals within both the Northeast US where it is currently based and further afield. The bank envisages purchases outside the Northeast costing between $2 billion and $5 billion.	17 Jul
ASIA-PACIFIC
Taiwan	Chinatrust Financial	Potential acquisition, capital raising	Chinatrust Financial, the largest credit card issuer in Taiwan, is to raise $1.34 billion in a share sale to help operations and business expansion in the long term. The firm is among the bidders for AIG’s Taiwanese consumer finance unit.	3 Sep
South Korea	Standard Chartered, Hana Bank, Vogo	Stake divestment	Private equity fund Vogo has purchased both Asia-focused Standard Chartered and South Korean institution Hana Bank’s stakes in South Korean card processor BC Card. The KRW194.4 million ($155.6 million) deal will see Vogo acquire a 30.68 percent stake in the company.	1 Sep
India	Bank of Baroda	Possible acquisition	State-run Indian institution Bank of Baroda intends to buy banks in Malaysia and Thailand to aid international expansion, according to a report in the Financial Express.	1 Sep
Australia	Commonwealth Bank of Australia	Capital raising	Commonwealth Bank of Australia (CBA), the country’s second largest bank by deposits, is to raise A$900 million ($755 million) in hybrid Tier 1 capital to shore up its capital base.	27 Aug
India	Punjab National Bank	Capital raising	India’s Punjab National Bank has raised INR5 billion ($100 million) via a bond sale to fund future growth and meet capital requirements.	25 Aug
China	Shanghai Pudong Development Bank	Capital raising	Shanghai Pudong Development Bank, the Chinese bank partially owned by Citigroup, has been granted conditional approval for a CNY15 billion ($2.2 billion) share sale by the China Securities Regulatory Commission.	25 Aug
Taiwan	Land Bank	Stake divestment	The Taiwanese government is to sell a 40 percent stake in Land Bank, a top five bank in the country by assets, in order to raise money for reconstruction efforts following the destruction caused by Typhoon Morakot.	25 Aug
South Korea	Shinhan Financial, BNP Paribas	Stake divestment	France’s BNP Paribas has cut its stake in Shinhan Financial from 8.5 percent to 6.2 percent, the South Korean group has said.	24 Aug
Australia	NAB, Challenger Financial Services	Acquisition	Australia’s NAB has purchased Challenger Financial Services’ mortgage business for A$385 million ($316 million). NAB will take over A$4 billion of loans at a discount to cover defaults.	18 Aug
China	Agricultural Bank of China, China Life	Possible stake acquisition	Chinese insurer China Life has said it is interested in buying Agricultural Bank of China (ABC) shares in the bank’s planned initial public offering. ABC is the last of the Chinese Big Four to go public.	18 Aug
Australia	Savings & Loans, Australian Central	Merger	Two Australian credit unions – Savings & Loans and Australian Central – are planning to merge pending a membership vote in November. The new institution will have over A$7 billion ($5.9 billion) in assets.	13 Aug
Hong Kong	China Construction Bank, AIG	Acquisition	China Construction Bank has acquired the Hong Kong consumer finance division of bailed-out American insurer AIG for a total consideration of $70 million. The unit currently has around 500,000 customers in Hong Kong.	12 Aug
Pakistan	MCB Bank, Royal Bank of Scotland	Acquisition	MCB Bank, Pakistan’s largest bank by market capitalisation, has purchased Royal Bank of Scotland’s (RBS) Pakistan banking unit for $87 million. The 75-branch-strong RBS Pakistan will expand MCB’s own branch network to 1,139.	12 Aug
Asia-Pacific	ANZ, Royal Bank of Scotland	Acquisition	Australia’s ANZ has purchased selected Asia-Pacific businesses from the UK’s Royal Bank of Scotland for a total consideration of $550 million. The acquisition is comprised of 54 branches, $3.2 billion in loans, $7.1 billion in deposits and 2 million clients across Taiwan, Singapore, Indonesia, Hong Kong, the Philippines and Vietnam.	4 Aug
Australia	National Australia Bank	Capital raising	National Australia Bank (NAB), Australia’s third-largest bank by assets, is raising up to A$2.75 billion ($2.25 billion) as a safeguard against further spikes in loan impairment rates and as a potential war chest for future acquisitions.	22 Jul
Source: RBI