For City National, it’s Chile in Miami
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By Lindsey White
May 29, 2013
Bankia’s City National Bank of Florida franchise drew a great deal of buyer interest, months of speculation and ultimately a Chilean buyer eager to expand in the Miami market.
On May 24 Chile-based Banco de Credito e Inversiones SA, or Bci, announced plans to acquire Miami-based City National in a deal valued at $882.8 million.
During the past six months, several names emerged as potential suitors for City National. While many observers had speculated that a Latin American buyer was likely, Bci garnered less attention than companies like Brazil’sBanco do Brasil SA.
“This bank kind of emerged at the last hour,” Paula Johannsen, a managing director at Monroe Securities, said of Bci.
Bankia disclosed that, after initial contact with 31 entities, it received expressions of interest from 13 financial institutions that led to six nonbinding offers. The final negotiations revolved around three entities.
Observers say the Chilean buyer got a good deal. “I think they got an excellent franchise for the price that they paid,” said Thomas Rudkin, a managing director at Syndicated Capital Inc.
The price is less than the $927.0 million that Bankia’s Caja Madrid paid for an 83% stake in City National Bancshares Inc. in 2008. “This has proven that when City National’s Spanish parent bought the bank, they overpaid for it,” said James Cassel, chairman and co-founder of Miami-based investment banking firm Cassel Salpeter & Co. On the other hand, he said Bci is paying a fair price.
A press release from City National noted the deal carries a 1.5x book value, and a company spokesman later clarified that the ratio was based on tangible book value. Johannsen said that while 1.5x book would be on the low side in some geographies, in Florida that pricing is “definitely on the high side.”
This could be due to the scarcity of franchises with size and scale comparable to City National in Florida. The bank has $4.7 billion in assets, $3.5 billion in deposits and $2.5 billion in loans.
“If you look in South Florida, there are very few banks even near this size that are available,” Cassel said.
Raymond James analyst Michael Rose notes that there are only 19 Florida-based banks with more than $1 billion in assets. “[T]he scarcity value of those franchises with greater than $1 billion in assets will only increase on the heels of the CNB acquisition in our view,” Rose wrote in a May 28 report. “While predicting the timing can be difficult, we anticipate that the pace of M&A in Florida will increase in the short to intermediate term given increased regulatory burden and the still-challenged earnings outlook for many smaller banks despite an improving economic backdrop.”
Banco de Credito e Inversiones is the third-largest bank in Chile with total assets of over $38 billion. The City National transaction is part of Bci’s effort to expand its international operations by increasing its presence in South Florida, where it has had a branch since 1999.
Several factors drove Bci’s desire to expand in the Miami market. For starters, the city has a fast-growing population (up 11% between 2000 and 2010) that is 65% Hispanic, according to a company release.
Margins also attracted Bci to the deal: The Chilean bank said that net interest margins are 3.6% for banks based in Miami, compared to 3.2% in Chile.
The Miami economy presents Bci with a big potential for growth: The company said that Miami’s GDP is about $263 billion compared to a GDP of about $268 billion for Chile.
With the acquisition, Bci aims to diversify its sources of income and its loan portfolio, create cross-sell opportunities and capture the benefits of the business flow between Miami and Latin America. In a news release, Bci CEO Lionel Olavarría called the deal the next natural step in the Miami market. “[City National] is a bank prepared to benefit from the ongoing recovery in the U.S. economy,” Olavarría said.
U.S. bank acquisitions with a Latin American buyer are few and far between. SNL Financial found just five such deals since 2000, including the City National sale. In two of these deals the buyer was based in Venezuela, while one was based in Mexico, one in Brazil, and one, Bci, was based in Chile. The targets in three of these deals were based in Florida.
Going forward, Johannsen thinks that the Miami market could see more Latin American players coming to the table, especially given how much interest the City National deal generated. “A few years ago it was the Spanish and some of the European-type banks,” she said. “Now we’re looking to South America.”