There have been so many bank acquisitions in the US in the past few weeks it is tempting to think that the financial mergers & acquisition boom must now be over. Simply, it seems there are few suitable banks or investment banks left to buy. In truth, the acquisition wave has only just begun.
The recent acquisitions have been mostly predictable. It was hardly a surprise that a big European universal bank like Swiss Bank Corporation would want to buy a prestigious (but relatively small) investment bank such as Dillon Read. Last month’s purchase of Oppenheimer by CIBC Wood Gundy was unusual only in that most observers predicted it also would be bought by a European institution, rather than by a Canadian one.
There are a few more rather predictable deals to come. On the acquirer side, ING seems unlikely to rest until it has found an interesting purchase. Other big European banks – ABN Amro, Deutsche Bank – could be buyers. Among the targets: DLJ and Hambrecht & Quist.
But it’s when the obvious deals are all done that things could start to get interesting. Wall Street is abuzz with rumours of surprising tie-ups. Most of these are the stuff of fantasy but, given the way that financial institutions are increasingly looking to new sectors for expansion, many will happen.
The hottest gossip is that Citibank might merge with American Express. Amex has been through difficult times recently, as some of its traditional businesses such as credit cards come under attack from more efficient providers. A merger with Citibank would make sense. Citi could use Amex as a base to build up a nationwide retail banking operation in the US. The international base of Amex would also be attractive, and its overlap with Citi’s would allow for considerable cost-cutting.
Expect also some big surprising commercial bank mergers. How about NationsBank and Bank of America joining up? Hugh McColl, chairman of NationsBank, makes little secret of the fact that he would like to retire in a couple of years as chairman of the biggest bank in the US (currently his capital is $7 billion behind that of Chase). BoA would be a tremendous deal to cap a career of acquisitive growth.
The fit looks good: NationsBank is dominant in a region that has grown outwards from the south-east; Bank of America is master of California (where NationsBank has nothing at all) and a chunk of the northwest and midwest.
As the imaginations of deal-making investment bankers run wild coming up with ever more astonishing combinations, the next few months should be fascinating.
