Banks should avoid large acquisitions until the dust settles from deals done during the financial crisis, U.S. Bancorp Chief Executive Officer Richard Davis said, citing costs that can come years later.
Its a very dangerous thing to do, Davis said yesterday in an industry-sponsored panel in New York. You better do it with the understanding that you might be surprised.
The six biggest U.S. banks have been pummeled with lawsuits, regulatory claims and fines of more than $100 billion since the credit crisis. Much of the sum was tied to actions of firms bought five years ago or more, and Davis said bankers should be wary of consequences from future takeovers.
You have to take a limited view of what the risk is worth, said Davis, 55. Its a buyer-beware environment for sure. Deals done to acquire scale or efficiency should be shunned, he said. Forget it; you better do it for a real revenue expectation, Davis said.
While U.S. Bancorp, the nations largest regional lender, is not out of the market for some deals, the firm will only consider opportunities where we can really understand what were getting, Davis said. The Minneapolis-based lender agreed this week to buy Quintillion, a Dublin-based hedge-fund administrator, to expand its trust business and increase its presence in Europe.
Brian Moynihan, CEO of Bank of America, said in response to Daviss comments that his firm is an example of a company that has learned a lot about what can be unpredictable about an acquisition. Moynihan said the bank isnt planning any more takeovers.
Under Moynihans predecessor, Kenneth D. Lewis, the Charlotte, North Carolina-based company bought mortgage lender Countrywide Financial and Merrill Lynch, the brokerage and investment bank, as the financial crisis unfolded in 2008. The lawsuits and settlements that followed have cost the bank more than $50 billion, and Lewiss 2006 takeover of credit-card issuer MBNA ultimately saddled the bank in 2011 with a $20.3 billion writedown as new regulations made the business less valuable.
Earlier this week, JPMorgan Chase agreed to pay $13 billion to settle government probes stemming in part from faulty home loans and mortgage-backed bonds sold by Bear Stearns and Washington Mutual's banking unit. JPMorgan, now the biggest U.S. bank, bought both of them in 2008 as they collapsed amid the financial crisis.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access