Which Large Bank Is a Target?

Barclays Bank (NYSE: BCS  ) , the U.K.'s second-largest bank, is on the prowl for a U.S. retail bank. The record of European banks acquiring U.S. lenders isn't good -- recall HSBC's (NYSE: HBC  ) disastrous purchase of subprime lender Household International. Does a deal make sense?

Barclays has emerged as one of the "winners" of the financial crisis, with M&A playing a major role. Its acquisition of Lehman Brothers' North American assets out of bankruptcy was a fantastic coup: In 2009, Barclays recorded a $4.2 billion net gain on the $1.75 billion transaction.

The target list
Although no deal is imminent, analysts and bankers refer to the following institutions as likely targets for Barclays:

Bank

Total Deposits

Market Capitalization

PNC Financial (NYSE: PNC  )

$186.9 billion

$29.0 billion

US Bancorp (NYSE: USB  )

$183.2 billion

$47.2 billion

SunTrust Financial (NYSE: STI  )

$121.8 billion

$13.0 billion

Fifth Third Bancorp (Nasdaq: FITB  )

$84.3 billion

$10.0 billion

Comerica (NYSE: CMA  )

$39.7 billion

$5.4 billion

Source: Capital IQ, a division of Standard & Poor's.

Buying cheap funds ...
Purchasing a U.S. retail bank would raise Barclays' deposit base -- a low-cost source of funds (that will become even lower cost relative to other, riskier types of bank funding if the government ultimately decides to tax the latter). However, at a time when the prevailing political winds are blowing in the direction of a separation of investment and commercial banking activities, it is by no means assured that regulators would look favorably on such an acquisition.

... with cheap shares?
Furthermore, Barclays would likely need to issue shares to complete the acquisition; with the U.K. bank's shares trading at a significant discount to those of three of the four banks in the above table (SunTrust is the exception), it had better make an ironclad case to its own investors.

A Barclays insider says: "If we do something, we will do it big." Individual investors don't have to "do it big" to earn big returns. For example, Warren Buffett -- who has to "do it big" -- wishes he could buy these stocks.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. Motley Fool has a disclosure policy.


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  • Report this Comment On March 12, 2010, at 4:12 PM, yak2081 wrote:

    Retiree's do move south, but with online banking made so easy there is no reason to switch banks

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