As Europe struggles with its debt crisis,
American businesses and financial firms are swooping in amid the
distress, making loans and snapping up assets owned by banks there —
from the mortgage on a luxury hotel in Miami Beach to the tallest office
building in Dublin.
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Jonathan Kitchen | Image Bank | Getty Images
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This month a team of three bankers from the London office of the buyout giant Kohlberg Kravis Roberts [KKR
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] headed to Greece to examine a promising private company that cannot get Greek banks to provide credit for future growth. The Blackstone Group [BX
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] agreed to buy from the German financial giant Commerzbank
$300 million in real estate loans that are backed by properties,
including the Mondrian South Beach hotel in Florida and four Sofitel
hotels in Chicago, Miami, Minneapolis, and San Francisco. Commerzbank is
under pressure from regulators to raise 5.3 billion euros ($6.9
billion) in new capital by mid-2012.
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] headed to Greece to examine a promising private company that cannot get Greek banks to provide credit for future growth. The Blackstone Group [BX
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] agreed to buy from the German financial giant Commerzbank
$300 million in real estate loans that are backed by properties,
including the Mondrian South Beach hotel in Florida and four Sofitel
hotels in Chicago, Miami, Minneapolis, and San Francisco. Commerzbank is
under pressure from regulators to raise 5.3 billion euros ($6.9
billion) in new capital by mid-2012.
Google [GOOG
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]
too saw an opportunity. It bought the Montevetro building in Dublin
this year from Ireland’s National Asset Management Agency, which
acquired it after a huge bank rescue by the Irish government.
]
too saw an opportunity. It bought the Montevetro building in Dublin
this year from Ireland’s National Asset Management Agency, which
acquired it after a huge bank rescue by the Irish government.
“There
is clearly a restructuring and shrinking of European financial
institutions,” said Timothy J. Sloan, chief financial officer of Wells Fargo [
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],
which last month acquired $3.3 billion in real estate loans from a bank
in Ireland. “And many of the assets they’re shedding are in the United
States.”
],
which last month acquired $3.3 billion in real estate loans from a bank
in Ireland. “And many of the assets they’re shedding are in the United
States.”
He added, “We’re keeping our eyes and ears open for the right situations.”
American financial firms are taking the plunge in a troubled Europe despite problems of their own. In the last quarter, JPMorgan Chase [JPM
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(+0.36%)
], which has taken hits to its earnings, increased its total loans to European borrowers.
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], which has taken hits to its earnings, increased its total loans to European borrowers.
At
Kohlberg Kravis, Nathaniel M. Zilkha, co-head of the special situations
group, is expanding his London team to eight, from two, and hoping to
take advantage of opportunities in Europe. The firm is even considering
potential investments in the country where the crisis began, Greece,
despite headlines warning of a default by Athens or the possibility that
Greece may withdraw from the euro zone.
“If
no one is willing to turn over the rocks, that’s when you can make
extraordinary investments,” Mr. Zilkha said. “The market dislocation in
Greece is creating significant opportunities that wouldn’t be otherwise
available.”
Besides
Greece, Kohlberg Kravis bankers have also been looking for deals in
Spain and Portugal, where private companies are having a similarly hard
time winning new credit or extending existing loans.
Ireland,
whose banks were devastated by the collapse of a real estate bubble
rivaling the one in the U.S., also has deep-pocketed American buyers
like Google circling.
But in many cases, the assets are much closer to home.
Last
month, Wells Fargo bought the $3.3 billion in real estate loans, which
are backed by commercial properties in the U.S., that had been owned by
the former Anglo Irish Bank. Wells has also bought $2.4 billion in loans
and other assets from the private Bank of Ireland, which is trying to raise 10 billion euros ($13 billion) after a bailout by the European Union and the International Monetary Fund
![[cnbc explains]](http://media.cnbc.com/i/CNBC/Sections/News_And_Analysis/_News/_CNBC_EXPLAINS/_IMAGES/CNBC_explains_icon1.gif)
.
.
Even with opposition from consumer advocates, Capital One Financial [COF
43.10
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(+1.08%)
] could soon win final approval from the Federal Reserve
for its $9 billion acquisition of ING Direct
in the U.S., one of the year’s biggest banking deals. Based in the
Netherlands, ING has been forced by European authorities to divest ING
Direct, an online bank, after ING required a $14 billion bailout
following the 2008 financial crisis.
0.46
(+1.08%)
] could soon win final approval from the Federal Reserve
for its $9 billion acquisition of ING Direct
in the U.S., one of the year’s biggest banking deals. Based in the
Netherlands, ING has been forced by European authorities to divest ING
Direct, an online bank, after ING required a $14 billion bailout
following the 2008 financial crisis.
Experts
expect these kinds of sales to jump as European banks race to meet the
June deadline imposed by the European Banking Authority to raise more
than 114 billion euros ($149 billion) in fresh capital. Financial
institutions also have to increase their Tier 1 capital ratio — the
strictest yardstick of a bank’s ability to absorb financial blows — to 9
percent of assets.
Banks get a twofold benefit from unloading
assets like real estate loans and other holdings; not only do they have
more cash, but there are fewer assets they must hold capital against in
case of losses, thereby quickly bolstering Tier 1 levels.
Investing in Europe is not without risk; a big bet on European sovereign debt
helped bring down MF Global, which went bankrupt on Oct. 31.
helped bring down MF Global, which went bankrupt on Oct. 31.
And
even as they jump into the new deals, some American banks must deal
with their own woes, especially the overhang of soured mortgages from
the subprime bubble and bust in the U,S.. Bank of America [BAC
5.60
0.13
(+2.38%)
], for example, has raised billions recently by selling stakes in banks in Brazil and China.
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(+2.38%)
], for example, has raised billions recently by selling stakes in banks in Brazil and China.
At
the same time, even the strongest banks, like Wells Fargo and JPMorgan
Chase, are suffering significant earnings hits from weak demand for
loans, moribund capital markets, and new regulations that cut deeply
into lucrative fees on debit cards and other products.
But
American institutions remain stronger than their European counterparts,
said Christopher Kotowski, an analyst with Oppenheimer.
“Everyone
is going to be cutting staff and shrinking capital commitments but the
Europeans are doing it more,” Mr. Kotowski said. In large part, that’s
because earlier in the U.S. financial crisis, Washington forced American
banks to take huge write-downs, while raising tens of billions in fresh
capital and halting dividends to conserve cash. European banks have
been much slower to take those steps.
Besides buying assets from struggling overseas rivals, Mr. Kotowski predicts that firms like JPMorgan Chase, Citigroup [C
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] and Goldman Sachs Group [GS
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] will capture more trading business on Wall Street, especially as French banks like Société Générale, Crédit Agricole, and other European institutions pull back.
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] and Goldman Sachs Group [GS
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] will capture more trading business on Wall Street, especially as French banks like Société Générale, Crédit Agricole, and other European institutions pull back.
French banks, in particular, have been heavily dependent on American money-market funds
to obtain financing in dollars. With many of these funds now
pulling back from those loans, French firms are shrinking. This month,
Crédit Agricole said it would exit the commodity trading business, while
Société Générale said it was getting out of physical gas and power
trading in North America.
to obtain financing in dollars. With many of these funds now
pulling back from those loans, French firms are shrinking. This month,
Crédit Agricole said it would exit the commodity trading business, while
Société Générale said it was getting out of physical gas and power
trading in North America.
Inside
his firm, Stephen A. Schwarzman, the chief executive of the Blackstone
Group, recently cited the $3 trillion estimate of how much European
banks will have to unload, and this summer he told investors that Europe
was back on Blackstone’s radar after being absent for several years.
“As
people become increasingly negative on the environment there, we think
we are buying good companies at very good values,” he said.
This story originally appeared in The New York Times
