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For most overseas lenders, US retail banking has been a graveyard of failed dreams. Drawn by America’s size, wealth and economic growth, UK-listed HSBC and RBS (now NatWest) and Spain’s BBVA all gave it a go before throwing in the towel. French lender BNP Paribas formally joined their ranks in calling it quits last month.

Yet some foreign banks remain convinced that they can make money from mass market American consumers. Bank of Montreal nearly doubled its US retail banking franchise to 4mn customers last month by taking Bank of the West off BNP’s hands for $16.5bn. And Spain’s Santander made strengthening its US bank, which has 4.5mn customers, an important part of its pitch at last week’s investor day.

In general, outsiders have struggled to compete in US retail banking. Without a developed branch network, it is hard to make an impression on potential customers. And even decent-sized regional banks struggle to keep up with the cost of regulatory demands and the need for new technology.

The foreign adventurers have often had global scale, but that helps less on the retail side than it does with investment and institutional banking and even wealth management. Retail products vary widely from country to country, limiting the ability to share costs. Even when lenders do attract deposits, finding ways to employ them profitably are complicated by US rules aimed at keeping capital local.

Why do Santander and BMO think it is worth trying to beat the odds? Partly a lack of options and partly a belief that technology has changed the equation. Each bank needs to find new sources of growth and each thinks that digital banking can help muster the scale to make a go of the US. But regulatory hurdles and economic challenges await.

BMO, the fourth largest Canadian lender, has been making US acquisitions for four decades but is only now aiming for national scope. Though the return on equity in US banking is generally lower than at home, BMO argues that the market is a logical target. The Bank of the West purchase now allows BMO to push forward with a conventional growth plan. The deal doubles its network to more than 1,000 branches and gives it a foothold in the huge California market and 31 other states. In a further effort to boost name recognition, BMO has agreed to pay $100mn to name Los Angeles’ soccer stadium.

Santander is opting for a narrower strategy built around online banking and auto loans. It plans to strip down its retail product offerings from 314 to less than 20 and use the digital app developed for Europe to cut costs. It has stopped new mortgage lending and bought out the minority investors in its US consumer unit. These moves allow it to channel deposits into car loans and compete profitably not just for borrowers with poor credit but also those who are much less likely to default but also command lower interest rates.

“We are not going to put capital in places where we are not competitive,” says Ana Botín, executive chair. She adds that rising US interest rates are helping to make retail banking more profitable than it has been in decades, and Santander can beat the odds because “we have something no one else has, global scale in auto lending”.

But it might not be the best time to bulk up. The US Federal Reserve, concerned that large regional banks could threaten financial stability, is considering rules that would raise costs for those that grow too big. BMO now has more than $250bn in US assets, putting it squarely in the Fed’s sights. Canadian rival TD has already felt the pressure: its $13.4bn acquisition of Memphis-based First Horizon ran into regulatory hurdles, delaying the deal’s closing date indefinitely.

Santander had trouble with the US stress tests before smaller overseas banks were exempted and further growth could trigger more scrutiny. It also is relying on auto loans at a time when more borrowers are struggling. The share of US auto loans that were severely delinquent in January hit the highest level since 2006 and defaults are rising as well. The risks of recession are already showing up in Santander’s results: the US accounted for 11 per cent of loans but 17 per cent of money set aside to cover losses as of December.

Botín remains firmly committed to a global retail strategy to fund her plan to woo sceptical investors with €3.8bn in share buybacks and dividends. “We can’t just be Europe,” she says. The bank has made big strides in the UK and Latin America, and drew 15 per cent of its profit from the US last year, second only to Brazil. So the siren call of the American market continues to sound.

brooke.masters@ft.com

Follow Brooke Masters with myFT and on Twitter

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