Citigroup has taken a step forward in its strategy to focus on the home market with the acquisition of First American Bank in Texas. The move is in line with that of other US banks such as JPMorgan Chase, which merged with Bank One in July.
Citigroup has taken a step forward in its strategy to focus on the home market with the acquisition of First American Bank in Texas. The move is in line with that of other US banks such as JPMorgan Chase, which merged with Bank One in July. Citigroup is buying First American Bank from Adam Corp, a private company, and has not disclosed the price. Analysts estimate the purchase price for the bank, which has $3.5bn in assets and 102 branches with 120,000 customers, at $750m-$800m. This represents Citigroup’s first entry into a competitive regional market where rivals Wells Fargo and Wachovia are already present. The largest bank in the world, Citigroup receives 64% of its net income from its US operations, up from 60% in 2002, according to its reported earnings. But this does not take into account the effect of dollar weakness, which inflates overseas earnings. Citigroup’s last major foreign acquisition was Mexican bank Banamex in 2001. This has allowed it to access the ever-growing Mexican remittances market. Total second quarter remittances from Mexican migrant labourers increased over 29% to $4.5bn, according to the Bank of Mexico. In 2002, Citigroup bought US bank Golden State Bancorp but in 2003 it abstained from major acquisitions. With the possibility of consolidating a fragmented US banking market and the high margins available, US banks are highlighting domestic opportunities. In The Banker’s Top 1000 July issue, US banks showed the highest return on capital of 29.3%, almost double that of the EU average of 15.6%. The vast majority of US banks are only present in their domestic market. Meanwhile, foreign banks continue to explore the opportunities afforded by entering the US market. Toronto-Dominion Bank of Canada is in talks aimed at taking a controlling stake in Banknorth, one of the largest independent banks in New England, the banks announced in late August. European banks like the UK’s Royal Bank of Scotland and France’s BNP Paribas are looking for add-on acquisitions to their US bank operations.
