National City Corp (NCC)

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NATIONAL CITY CORP.
Scotiabank urged to bid for U.S. bank
BY DUNCAN MAVINFinancial Post dmavin@nationalpost.com
If Bank of Nova Scotia (BNS/ TSX) is ever going to join the other Canadian banks that are carving up the U.S. regional banking scene, there will likely not be a better opportunity than the rumoured acquisition of National City Corp. (NCC/NYSE).

“For a little more than one year’s earnings, Scotiabank could acquire NCC and obtain a larger presence in the U.S. regional banking arena than their Canadian peers have been able to develop despite numerous years and numerous deals south of the border,” said Merrill Lynch analyst Sumit Malhotra in a note to clients.

Scotiabank has always shunned opportunities to invest in the U.S. market, unlike Bank of Montreal (BMO/TSX), Toronto-Dominion Bank (TD/TSX) and Royal Bank of Canada (RY/TSX), all which have spent years and billions of dollars trying to build worthwhile U.S. franchises.

Although Scotia’s executives may have kicked the tires at one or two U.S. targets — including, possibly, Hudson United Bancorp, which was bought by TD for US$1.9-billion in 2006 — they found acquisitions were too expensive, the U.S. banking market was too competitive, building scale would take too long, and there were opportunities to make better returns in other countries.

That has now changed as NCC comes at a cheap price for Scotia, addressing most of the concerns of the Canadian bank, Mr.Malhotra said.

NCC has a total market capitalization of just US$5.4-billion, down 75% from US$21.4billion a year ago thanks to a book of loans that looks particularly susceptible to the U.S. housing train wreck.

The 163-year old Clevelandbased bank — which has about 1,400 branches throughout the mid-west, compared to Scotia’s 1,000 or so in Canada — is a top 10 U.S. bank with US$81-billion in core deposits. Compare that to US$45-billion in core deposits at Commerce Bancorp, the New Jersey-based bank TD bought last month in a deal valued at about US$7-billion.

Other rumoured bidders for NCC include Ohio rivals KeyCorp and Fifth Third Bancorp. The U.S. regional banks would enjoy greater synergies than Scotia by buying NCC. But both KeyCorp and Fifth Third may be distracted by their own piece of the U.S. banking crisis and the country’s housing woes.

If Scotia is to buy in, it might take a smaller stake initially. Scotiabank has historically mitigated the risk of new acquisitions in the Caribbean, Mexico and Latin America, by taking an investment position at first and gradually increasing the size of its position after learning the market, said Mr. Malhotra. The Canadian bank could buy a decent slice of NCC for about US$1-billion to US$2-billion for now, with an option to take out the whole bank at a later date.