Big bank deals make a comeback in US

PNC Financial Services Group said Monday that it would acquire the US retail banking unit of the Royal Bank of Canada (RBC) for $3.45 billion, four days after Capital One said it would buy the US online banking unit of ING for $9 billion.

With the acquisition of RBC's network of branches in the southeastern United States, PNC will become the fifth-largest bank in the United States, the Pittsburgh-based bank said.

Meanwhile, Capital One has said it will become the largest direct bank in the United States with its purchase of ING Direct USA, which has 7.7 million customers, according to Amsterdam-based ING.

The pair of multibillion-dollar deals comes after a long period in which banking mergers and acquisitions were few and far between.

"You haven't seen a lot of bank merger and acquisitions of late," Richard Fairbank, chairman and chief executive of Virginia-based Capital One, said after the ING deal was announced.

Since the 2008 financial crisis, most bank M&A deals have been valued at several hundred million dollars, with a few exceptions such as the $6.3 billion acquisition of Chrysler Financial by Canada's Toronto-Dominion Bank in December.

The latest deals involving Capital One and PNC were made possible because these banks had raised enough capital to go shopping for assets again, analysts said.

"The deals could not have happen six months ago because these companies did not have enough capital relating to what the capital needed to be," said Dick Bove, a banking analyst with Rochdale Securities.

The economic recovery in the United States has also improved the environment for deal making, said Jim Sinegal, a banking analyst at Morningstar, an investment research company.

"It seems like the economy has stabilized quite a bit. We think a lot of buyers have a better sense of what might be on the books of sellers and know how to evaluate that," Sinegal said.

Residual weakness in the banking system means there are many assets that could become acquisition targets.

In the case of Royal Bank of Canada's US assets, PNC bought them for less than book value, and RBC admitted that it would take a loss of around $1.6 billion on the sale.

"It was no secret that this was a fairly low-performing portfolio," said Erik Oja, a banking analyst with Standard & Poor's. "RBC was not able to make a profit (with its US assets) in three years."

As for ING, the Dutch bank was forced to reduce its ambitions in the United States and sell off ING Direct USA in part because of its need to repay the Dutch government for a bailout during the 2008 financial meltdown.

ING accepted a 10-billion-euro ($14.2 billion) cash injection from the Dutch government in October 2008 and is still in the process of repaying it.

Analysts have speculated that the next round of bank deals could involve the sale of British giant HSBC's international assets or of smaller US banks that still need to repay the US government for their 2008 bailouts.

If approved by regulators, the PNC and Capital One deals will continue the trend of consolidation in the US banking sector, making a pair of large banks even larger -- despite frequent talk in Washington about the need to regulate banks that are "too big to fail."

The fact that the two acquisitions were announced suggests US regulators have already sent favourable signals that the deals can go forward, said Bove of Rochdale Securities.

"There had to be a sign from the regulators that these transactions could go forward," Bove said. "Obviously something happened in Washington to stimulate these kind of transactions to occur."

Copyright AFP (Agence France-Presse), 2011