U.S. Bancorp CEO Cites ‘Dangerous’ Retroactive Deal Risks
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.
“It’s 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. “It’s 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 nation’s largest regional lender, is not “out of the market” for some deals, the firm will only consider opportunities where “we can really understand what we’re getting,” Davis said. The Minneapolis-based lender agreed this week to buy Quintillion Ltd., a Dublin-based hedge-fund administrator, to expand its trust business and increase its presence in Europe.
Brian Moynihan, CEO of Bank of America Corp. (BAC), said in response to Davis’s 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 isn’t planning any more takeovers.
Under Moynihan’s predecessor, Kenneth D. Lewis, the Charlotte, North Carolina-based company bought mortgage lender Countrywide Financial Corp. and Merrill Lynch & Co., 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 Lewis’s 2006 takeover of credit-card issuer MBNA Corp. 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 & Co. agreed to pay $13 billion to settle government probes stemming in part from faulty home loans and mortgage-backed bonds sold by Bear Stearns Cos. and Washington Mutual Inc.’s banking unit. JPMorgan, now the biggest U.S. bank, bought both of them in 2008 as they collapsed amid the financial crisis.
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