The Zeitgeist Has Changed

The Japanese are prodigious savers. Historically they’ve socked away about 20 percent of what they earn. Citigroup knows this. HSBC knows this. That’s why both banks are upping their exposure to the Japanese market. HSBC recently said it would open its first retail branch there in January. Citi which already has a beefy branch structure in place today announced it's scooping up the chunk of brokerage Nikko Cordial it doesn’t already own for $4.6B. A 16% premium. Nikko shareholders will get Citi shares for their trouble. No cash. Increasingly big deals are being funded using equity as opposed to cash. The cash component of Toronto Dominion’s $8.5B purchase of Commerce Bancorp is pretty small too. Only about 25% of the deal. This seems to be the lasting legacy of the global credit crunch. A tighter and more stringent credit market means companies are unable to borrow the bucket loads of cash they need to fund these massive deals. That may also be driving down the overall value of deals and the premiums being paid. Bank analyst Gary Townsend commented on BNN today the premium being paid by TD for Commerce Bancorp was pretty thin. Savvy deal making by TD you could say. Or the zeitgeist may have changed.