Citigroup Inc. and HSBC Holdings Plc, two of the world's largest banks, on Wednesday dampened investor expectations that they may soon buy large U.S. retail banks.
Citigroup Chief Executive Charles Prince said U.S. retail bank valuations are "out of line." He said the world's No. 1 financial services company will wait for lower prices, while continuing its focus on expanding its existing businesses.
Meanwhile, Douglas Flint, HSBC's finance director, said Britain's largest bank is focused on developing newly acquired businesses, such as consumer finance company Household International Inc. HSBC's U.S. banking operations are already among the 10 largest.
The announcements contributed to a decline in shares of Washington Mutual Inc., the largest U.S. savings and loan. The Seattle-based company in May was the subject of speculation that either Citigroup or HSBC might buy it.
A wave of U.S. bank mergers began in earnest in October, when Bank of America Corp. agreed to pay $47 billion for FleetBoston Financial Corp. Then in January, J.P. Morgan Chase & Co. agreed to pay $58 billion for Bank One Corp. Many smaller banks have also agreed to buyouts.
"Expectations of sellers are higher than what perceived buyers are willing to pay," said Bob Maneri, an analyst at Victory Capital Management in Cleveland. "For more than just WaMu, but perceived sellers among banks in general, it means they may not get the prices they had hoped for."
CITIGROUP
Speaking at a Sanford C. Bernstein & Co. conference, Prince said Citigroup will consider acquisitions in global transaction services, which provide securities servicing, cash management and other services.
But Prince said U.S. retail banks appear too costly, though the company has often said it wants to expand in the Northeast, California, Florida and Texas.
"We're in a cycle where the pricing on U.S. retail branches is out of line," Prince said. "We obviously had opportunities to do things and walked away from them.... We'll wait for the next time when those activities are more moderately valued."
Citigroup is this quarter taking a $4.95 billion after-tax charge, about three months of profit, to add to reserves for assorted litigations.
HSBC
HSBC suggested it is unlikely to soon follow British rival Royal Bank of Scotland Group Plc in making another big U.S. retail banking push. RBS in May agreed to buy Cleveland's Charter One Financial Inc. for $10.5 billion.
Flint said HSBC prefers to hunt for acquisitions when targets appear weak, and that low interest rates and high levels of mortgage refinancings have recently boosted U.S. banks' profit. HSBC in 2003 paid $14.8 billion for Household.
"The emphasis very much at the moment is on developing what we've got," Flint told analysts. He said HSBC will still look at smaller purchases, particularly in Asia.
Simon Maughan, a Dresdner Kleinwort Wasserstein analyst, said HSBC appears "quite prepared to sit and wait for the bid speculation to come out of (U.S.) bank stocks."
In Wednesday afternoon trading, Citigroup shares rose 4 cents to $46.87, while Washington Mutual shares fell $1.08 to $41.91. HSBC shares fell 1 pence to 814-1/2. (Additional reporting by Sean Farrell and Carmel Crimmins in London)