Monday, December 20, 2010

Merger Pressure

Regional US banks looking to mergers

By Francesco Guerrera, Justin Baer and Helen Thomas in New York
Published: December 19 2010 19:48 | Last updated: December 19 2010 19:48

Financial Times

US regional banks are preparing for consolidation as the hangover from the financial crisis and the sluggish economic recovery put pressure on underperforming lenders to raise capital or sell to a rival.
Bankers and their advisers say the next two years could witness several mergers among the 7,000-plus banks that make up the backbone of the US banking system.

On Friday, Marshall & Ilsey, a troubled mid-western lender, agreed to a $4.1bn all-stock takeover by Bank of Montreal, a Canadian bank that avoided large losses during the crisis.

Analysts say that this type of deal between struggling local lenders and healthier, bigger competitors could be a template for future takeovers.

“We expect a wave of . . . bank consolidation to emerge within the next 12-18 months after a dearth of deals during and immediately after the financial crisis,” wrote Christopher McGratty, at Keefe, Bruyette & Woods, in a note to clients.

With the “big three” national banks - JPMorgan Chase, Bank of America and Wells Fargo - still digesting the large acquisitions made during the turmoil, buyers are likely to be large regional players with solid balance sheets and robust earnings.

KBW analysts said banks such as Pittsburgh-based PNC, US Bancorp, the fifth-largest commercial bank in the US, and BB&T, a North Carolina lender, were among the companies that could hit the takeover trail to boost profits.

Canadian banks such as BMO and TD Bank Financial Group could also be among the ­acquirers.

Bankers said potential targets included banks whose recovery from the crisis has been slow because of their exposure to soured mortgages and commercial real estate loans.

Among the possible sellers, industry experts named Regions Financial Corporation, a loss-making lender with more than $130bn in assets and about 1,800 branches in the south and midwest of the US; Synovus, a smaller bank with exposure to the troubled real estate markets of Georgia and Florida; and Atlanta-based SunTrust.

SunTrust and Regions are among the largest remaining recipients of government aid, with $4.9bn and $3.5bn outstanding under the Troubled Asset Relief Programme. The two are part of a group of banks undergoing “stress tests” by the Federal Reserve to determine whether they are healthy enough to repay Tarp.

Regions, SunTrust and Synovus declined to comment.

US banks have often been a fertile source of deals. Despite a raft of takeovers that helped create today’s financial powerhouses such as BofA, JPMorgan and Citigroup, the industry remains fragmented.

Bank deals slowed to a crawl in 2008 as the crisis set in, with government-assisted takeovers of failing lenders the only source of activity. But as the worst of the downturn receded, many banks rebuilt their balance sheets and churned out higher profits. Their recovery has stood in stark relief to some banks still reeling from loan losses and tepid fee income.

Financial Times