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US facilitates bank mergers

(chinadaily.com.cn)
Updated: 2008-10-21 15:22

In a bid that would accelerate a shakeout of American banking industry, the US Treasury Department hopes to spur a new round of mergers and acquisitions, by steering some of the money in its US$250 billion rescue plan to bigger banks that are willing to buy weaker rivals, the New York Times reported.

As the US Treasury embarks on its unprecedented recapitalization, it is becoming clear that the federal administration desires to reshape the banking sector. Two senior Treasury officials said the selection criteria would include banks that need more capital to finance acquisitions.

“Treasury doesn’t want to prop up weak banks,” The New York Times quoted an official as saying, who spoke on condition of anonymity, because of the sensitivity of the matter. “One purpose of this plan is to drive consolidation.”

With bankers traumatized by the credit crisis and the loss of investor confidence, there are plenty of banks open to selling themselves. The hurdle is a lack of well-capitalized buyers.

Stable national players Like the Bank of America, JPMorgan and Wells Fargo are already digesting acquisitions. A second group of large regional banks are well positioned to take over their competitors, but have been reluctant to undertake or unable to complete deals.

By offering capital at a favorable rate, the Treasury may encourage them to expand. In this category, industry analysts point to regional leaders, like KeyCorp of Cleveland, Fifth Third Bancorp of Cincinnati, BB&T of North Carolina, and SunTrust Banks of Atlanta.

With $125 billion left over after investing in the nine largest banks, the Treasury secretary, Henry Paulson, said there was enough capital to invest in every qualified bank.

"We have received indications of interest from a broad group of banks of all sizes,” he said at a news conference. “This program is not being implemented on a first-come, first-served basis.”

Providing capital to help facilitate a merger, US officials say, is also a way to track how the capital is used. Some analysts have questioned how much control the government can exert over its investment, when it is injected into banks in return for non-voting preferred shares.