Japanese Own Chunk of US Banks
NEW YORK — BANK industry bargain-hunters from abroad are prowling the corridors of United States financial institutions, looking for a good buy. Case in point: last week's purchase of 4.9 percent of Manufacturers Hanover Corporation by Japan's Dai-Ichi Kangyo Bank Ltd., the world's largest bank. Dai-Ichi's entry into the US market is only the latest in a gradual but continuing penetration of the American banking industry by overseas institutions. Although there have always been some overseas banks maintaining offices in the US, in recent years more and more commercial banks have been choosing to come to the US, either directly, through branch offices, or by buying into US financial institutions.
Japanese financial institutions, for their part, now control about 10 percent of total US banking assets, according to industry sources. The Japanese have been especially aggressive in the competitive West Coast market, such as Bank of Tokyo's purchase last year of Union Bank in Los Angeles. But in addition, European banks - from countries as diverse as Switzerland, Ireland, and Britain - have been eyeing potential targets in the US. ``I fully expect that there will be more of these transactions,'' says Cheryl Swaim, an industry analyst with Oppenheimer & Co. ``The overseas banks are a very good source of capital.''
It's hardly coincidental that the interest from abroad comes now. Many US banks are in need of recapitalization, following an overextension of loans to the real estate industry, loans to finance costly corporate leveraged buyouts, as well as past loans to third-world nations. Precisely because of the considerable loan portfolios of many banks, a number of analysts believe that this is a time to be cautious in investing in bank stocks in general. Michael Plodwick, an analyst with Tucker, Anthony & R. L. Day Inc., , notes that the mood at a recent banker's convention was one of caution regarding the banking industry. That perception of caution, he says, certainly includes banks in New England, his area of speciality. Still, Tucker Anthony is recommending two major banks in the mid-Atlantic/New England area: Midlantic Corporation of New Jersey and Shawmut of Massachusetts.
The regional challenge for the industry in New England, Mr. Plodwick notes, is the high degree of ``real estate overbuilding in that area,'' which has produced increasing numbers of charge-offs on delinquent or failed loans.
By contrast, California and the upper Midwest, says Ms. Swaim of Oppenheimer, are ``two regions that continue to look good'' for the industry. In both cases, she says, the regional economies remain strong, reflecting relatively robust manufacturing sectors.
For the industry as a whole, however, the period ahead looks to be one of relatively slow growth and, thus, caution for investors, says Walter Baumann, an analyst with The Nikko Securities Company International Inc. Mr. Baumann believes that the recent surge in bank-lending to finance LBOs has ``thrown up a warning flag'' to the industry. He points to the recent debt troubles for the Campeau Corporation - debt assumed by that firm as it overextended itself in gobbling up a number of US department store chains.
Baumann, however, is upbeat about an eventual resolution of the third-world loan problem, which caused such anxiety in banking and financial circle earlier in this decade. The third-world loan issue, he believes, is ``close to being put to bed.'' One example, he says, is the new recapitalization on the part of Manufacturers Hanover.
Indeed, as a result of Manufacturer's recapitalization, Kidder, Peabody & Co. has raised the bank's rating to ``market performer'' status from a prior status of ``underperformer.'' The recapitalization, says Charles Peabody, an analyst for Kidder, should allow Manufacturers to substantially increase its capital ratios ``without mortgaging the future of the franchise.''
Under terms of the 4.9 percent purchase agreement with Dai-Ichi Bank, Manufacturers will receive an infusion of $120 million. In addition, Dai-Ichi is taking over Manufacturer's CIT Group for $1.28 billion. All told, Manufacturers can now boost its loan-loss reserves to 36 percent of the bank's medium- and long-term loan exposure, compared with 22 percent up to now, the lowest reserve of any major money-center bank.