Dealmaking tough versus TARP: Scotia Bank CEO

NEW YORK (Reuters) - A government plan to inject $250 billion in capital into domestic banks has made it difficult for foreign banks to do deals in the United States, the head of Canada's Bank of Nova Scotia (BNS.TO) said on Wednesday.

Scotiabank looked at buying National City Corp NCC.N, but its efforts were cut short when the Treasury Department decided to invest in U.S. banks, giving them access to cheap capital for acquisitions, Scotiabank Chief Executive Rick Waugh said at the Reuters Global Finance Summit in New York.

"We continued to monitor the situation," Waugh said, referring to National City. "When everybody got access to government money at reduced rates, it was academic. We just could not come up with seven or eight billion dollars of subsidized capital."

National City aggressively invested in its mortgage business, beginning in the 1990s, a bet that paid off earlier this decade, but turned sour as the housing market declined.

In April, the Ohio-based lender got a $7 billion infusion from private equity firm Corsair Capital and other investors, but it continued to face problems, and regulators pressured the bank to sell itself.

Last month PNC Financial Services Group Inc (PNC.N) agreed to buy National City in a $5.6 billion deal that was helped by a $7.7 billion injection from the government under the Troubled Asset Relief Program (TARP).

The Treasury, which has earmarked $250 billion under TARP to inject capital into financial institutions, considers merger opportunities as one factor when it decides which banks get government investments.

"I am sure the government had to do what it had to do," Waugh said. But he added, "to bring new money into the United States will be very difficult right now."

Scotiabank has wholesale banking operations in the United States, but not retail banking. National City was attractive for its franchise, Waugh said.

"It was No. 1 or 2 in a lot of states, in a lot of cities. It had $80 billion to $90 billion of retail deposits," he said. "We are a very traditional bank. And that's what that bank was."

Waugh said although he did not think the Federal Reserve had anything against Scotiabank buying National City, the Canadian bank was at a disadvantage as suitor once TARP money was made available to U.S. banks.

"I am willing to compete with any private bank in the world -- for capital, for access, for people, for customers. But I can't compete with sovereign governments," Waugh said.

(Editing by Jeffrey Benkoe)