U.S. Businesses Eyeing European Assets Amid Financial Woes

By: EW News Desk Team   Date: 27 December 2011

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EW News Desk Team

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EconomyWatch, News Desk Team

 

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27 December 2011

U.S. firms are taking advantage of the European debt crisis to make loans and pick up assets owned by cash-strapped regional banks, according to a New York Times report on Monday. An estimate from Morgan Stanley expects European financial institutions, largely under pressure from regulators, to shed up to $3 trillion in assets over the next 18 months.

As Europe battles its financial crisis, U.S. businesses and financial firms are snapping up assets owned by European banks, as European regulators demand them to raise capital and shrink their balance sheets.

There is clearly a restructuring and shrinking of European financial institutions and many of the assets they are shedding are in the United States, said Timothy Sloan, chief financial officer of Wells Fargo.

Last month, Wells Fargo purchased $3.3 billion in real estate loans, loans backed by commercial properties in the United States, which had been previously owned by the former Anglo Irish Bank. Wells has also bought $2.4 billion in loans and other assets from the private Bank of Ireland, which is trying to raise 10 billion euros ($13 billion) after a bailout by the European Union and the International Monetary Fund.

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“We’re keeping our eyes and ears open for the right situation,” Sloan added.

According to the Times, buyout group Kohlberg Kravis Roberts bankers have been visiting Greece, Spain and Portugal, in search of deals.

Experts expect the number of deals to jump ahead of the June deadline from the European Banking Authority for banks to raise more than 114 billion euros ($148.7 billion) in new capital.

However, Christopher Kotowski, analyst with Oppenheimer, thinks American institutions remain stronger than their European counterparts: Forced to take huge write-downs earlier in the U.S. financial crisis, American banks raised billions in capital and cut down on dividend payments to conserve cash. In contrast, European banks have been much slower in implementing these measures.

Besides buying assets from struggling overseas rivals, Kotowski predicts that firms like JPMorgan Chase, Citigroup and Goldman Sachs will capture more trading business on Wall Street, especially as French banks like Société Générale and Crédit Agricole and other European institutions pull back.

But investing in Europe is not without risk – a big bet on European sovereign debt helped bring down MF Global, which went bankrupt on October 31.

Related Story: Can The “Wild Beast of Finance” Be Tamed?


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