What a difference a few years make. Four years ago, US banks were in the gutter, allowing some European banks and funds to sweep up assets. Now the tables have turned.
Last month, Wells Fargo announced the acquisition of WestLB’s $6 billion portfolio of US loans and funding commitments. Just a week before, Citi bought part of Société Générale’s shipping-loan portfolio, and Eurohypo’s sale of $760 million in US commercial real estate loans to US Bancorp, Wells Fargo and Blackstone closed.
US funds are also lining up. This month, $26 billion hedge fund DE Shaw is planning to launch a fund to buy assets from European banks. In Euromoney last month, it was reported that some €50 billion raised by US and non-US funds was ready to buy up distressed European assets by the year end.
It was not Wells Fargo’s first foray into getting US assets cheap from European banks. During the past 12 months, the bank has bought loans from BNP Paribas, Allied Irish Banks and Bank of Ireland totalling around $22 billion.
And analysts say many more US banks have been buying dollar loans from their European counterparts than has been made public.
It is inevitable that more deals will be done by the likes of US Bancorp, PNC and other cash-rich US banks. Deposits in US banks have expanded as competition has diminished, while the cost of deposits has declined. And now US banks find themselves rich in capital and funding.
European banks, on the other hand, are being forced to sell their dollar assets and retreat from the dollar-loan market. That is more business for US banks, and by buying assets they get increased volume at wider margins.
Some investors at Wells Fargo have been critical of the bank’s recent expansion into capital markets and involvement in buying loans from European banks, but they are foolish.
There are very few opportunities to increase earnings in the current environment – and this one is almost a guarantee. The US banks that move on Europe’s woes will reap large gains.
