Three of Canada's largest banks have been reported to be potential acquirers for French bank BNP Paribas SA's U.S. arm, but some analysts are skeptical that a deal can work.
Reuters reported, citing anonymous sources, that BNP has engaged advisers as it considers selling Bank of the West. If BNP does strike a deal for the U.S. unit, it would be the fifth foreign bank to off-load its U.S. operations over the last year. The report named several potential bidders, including Toronto-Dominion Bank, Bank of Montreal and Royal Bank of Canada.
BNP Paribas has reportedly hired JPMorgan Chase & Co. and The Goldman Sachs Group Inc. to prepare Bank of the West for a sale and to help find prospective buyers.
Canadian banks have long been rumored as potential buyers for large U.S. franchises, but some analysts expressed doubt that the Canadian banks would be interested in Bank of the West. Still, executives at Toronto-Dominion and Bank of Montreal have said they are interested in M&A and would consider an expansion into the U.S.
Quick T The rumored sale price of $15 billion would further contribute to an already record pace for bank M&A activity in 2021 and equate to 158% of Bank of the West's tangible common equity at Sept. 30. The price would be slightly above the median in deals announced this year but notably higher than the prices paid in recent purchases of subsidiaries of other foreign banks. The three rumored Canadian buyers and PNC Financial boast strong currencies, however, with each of their shares trading above 2x tangible book value. - Nov. 16, 2021 |
Royal Bank of Canada would be unlikely to be interested in acquiring a significant consumer lending business in the U.S., especially considering the bank exited the space in 2011, Credit Suisse analysts wrote in a note. For Bank of Montreal and TD, the analysts said the potential deal value of $15 billion would be too dilutive, and the banks would have few opportunities to realize cost synergies.
National Bank of Canada analysts also were bearish on a Canadian buyer for the business, highlighting the scant geographic overlap between Bank of the West and the Canadian banks, as well as the lack of excess capital to cover the reported price tag. They also noted that the Biden administration has been more critical of bank deals.
BNP Paribas would be joining a growing list of foreign banks selling off their U.S. banking units. Over the last year, four such deals have been struck or completed: Valley National Bancorp is buying the U.S. unit of Bank Leumi le- Israel B.M.; Mitsubishi UFJ Financial Group Inc. is selling most of MUFG Union Bank NA to U.S. Bancorp; HSBC Holdings PLC announced a deal to sell much of its U.S. operations to Citizens Financial Group Inc. and Cathay General Bancorp; and Banco Bilbao Vizcaya Argentaria SA sold its U.S. unit BBVA USA Bancshares Inc. to The PNC Financial Services Group Inc. in a transaction completed in June. In its report, Reuters also cited PNC Financial Services Group Inc. and KeyCorp as potential suitors for Bank of the West.
Credit Suisse analysts described the moves as part of a "scaling home" trend of global banks pruning extant markets and building scale in their core geographies. They also cited Citigroup Inc.'s decision to exit its consumer business in 13 markets across Asia-Pacific and Europe, the Middle East and Africa.
In an earnings call in October, BNP Paribas CFO Lars Machenil said Bank of the West's holding company, BancWest Holding Inc., has "good positioning" in the recovering U.S. economy, but did not close the door on M&A speculation.
"We have a lady who is in charge who's hitting all cylinders. So from that point of view, we're happy campers. But as you know, there are things happening. And so yes, we keep our eyes open," Machenil said, according to a transcript.
Discussions are at an early stage and reaching a deal is not guaranteed, according to the Reuters report.