THE BANKS RUSH IN WHERE REGULATORS FEAR TO TREAD
When Philip Morris set out to acquire General Foods in 1985's biggest M&A deal, two members of its treasury department did some preliminary scouting. They telephoned 50 banks to arrange a $6 billion credit before the Morris board came to rubber stamp the takeover. They corralled 12 of the largest banks in the US and seven Japanese banks, which committed from $50 million to $350 million each.
But the deal did not stop there. Within weeks, many of the banks had sold off portions of their loans to other financial institutions, skimming a few points off in the process as a fee for their trouble. The buyers were, invariably, the US branches of foreign banks. As a result, banks on the periphery of Morris's financial vision, such as the Bank of Scotland, Kyowa Bank, and the Hokkaido Takushoku Bank ended up with the Philip Morris credit on their books. They could not have brought such a highquality name onto their books any other way.
This is an example of the sweeping changes taking place in US banking. Major US banks are leveraging off their ties to America's top corporations to make money without lending money.