Boring is beautiful in banking, and we should all be excited at the
prospects of the world being populated soon by more boring bankers.
There is a Darwinian process of natural selection taking place among
banks now, and it is those financial fuddy-duddies in their pin-striped
suits who are feasting on their once flashier peers.
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Wells Fargo & Co., which was in hibernation through the bank deal boom earlier this decade, has pounced upon Wachovia Corp, pushing Citigroup Inc. aside in the process. And now PNC Financial Services Inc. has said it will buy National City Corp. for $5.2 billion.
Both
institutions are acting because their boring loan portfolios are in
better shape than those of banks who took greater risks. And the
provisions of the Treasury bailout packages mean that these strong
institutions can sell preferred shares to the government to boost their
capital. So they can do an all-stock deal for a weaker bank and
actually improve their capital position.
The market is smiling
happily on these dull and dreary banks. In the wake of the PNC-National
City deal announcement Friday, even though the stock market is
crashing, three of the few stocks that are up in the S&P 500 are
PNC (up 4.6% as of noon), BB&T Corp (up 4.8%) and US Bancorp (up
0.2%).
The PNC deal shows that well run banks -- even those
that are midsized groups -- are getting ready to cash in on their years
of prudence and expand by taking out more reckless competitors. Keep an
eye on BB&T, US Bancorp and even smaller fuddy-duddy Hudson City
Bancorp Inc. to be on the prowl in the current environment.
They
will likely be joined by foreign banks that have followed conservative
lending policies in the past. Spain's Banco Santander SA has already
jumped in with the acquisition
of the 80% of Sovereign Bancorp it doesn't already own. Expect Spain's
Banco Bilbao Vizcaya Argentaria SA, Britian's HSBC Holdings plc and
Canada's Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova
Scotia to follow Banco Santander's lead.
These foreign banks, however, have all lost some acquisition currency
as the euro, pound and Canadian dollar have taken a beating lately
against the dollar. But with the shares of U.S. banks weak now, they
can still muster the firepower to buy some substantial institutions. - Peter Moreira
Peter Moreira is The Deal's senior banking reporter.
