Next Wave Of U.S. Bank Mergers May Be On Horizon

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MarketWatch

July 1, 2010 Thursday 3:19 PM EST

SECTION: PERSONAL FINANCE; Banking

LENGTH: 453 words

HEADLINE: Next wave of U.S. bank mergers may be on horizon

BYLINE: Matt Andrejczak, MarketWatch mailto:mandrejczak@marketwatch.com.

Matt Andrejczak is a reporter for MarketWatch in San Francisco.

SAN FRANCISCO (MarketWatch) — Increased regulatory costs and stronger capital requirements could force a new round of U.S. bank consolidation over the next 12 to 18 months, Keefe, Bruyette & Woods said Thursday.

“A key board consideration is likely to be whether earnings headwinds will remain too intense and preclude the bank from earning an acceptable return above its costs of capital,” KBW analyst Chris McGratty wrote in a research report. “If so, we believe this is likely to spark conversations about maintaining independence.”

Bank deals flamed out in 2008 when the global credit crisis decimated the financial sector. Banks are still trying to climb out of the hole they dug for themselves during the real estate bubble. That has forced banks to write off bad assets, raise fresh capital, and pay back funds owed to the U.S. government under the Troubled Asset Relief Program.

Now, they will face new fees and other restrictions under the massive financial reform bill working its way through Congress.

Talk of bank mergers has heated up as Congress edges closer to hammering out new federal bank-oversight laws and as loan growth has stalled. In a June 16 research note, Credit Suisse analysts said regional banks may become willing sellers in 2011 to 2013.

In its report, KBW listed 38 potential buyers of other banks and 26 target banks because of their attractive geographic footprints, higher percentage of low-cost deposits, and above-average earnings power compared to other banks.

Prime acquisition targets, KBW speculated, could be Abington Bancorp (ABBC) ; Boston Private Financial (BPFH) ; Cardinal Financial (CFNL) ; Encore Bancshares (EBTX) ; Susquehanna Bancshares (SUSQ) ; Western Alliance Bancorp (WAL) ; and Wilmington Trust (WL) .

Large banks that could go on the prowl are BB&T (BBT) and U.S Bancorp (USB) , both of which have long histories of acquiring regional and small community banks. PNC Financial (PNC) is another, KBW said.

Among the buyers in the regional space, it listed Oregon-based Umpqua Holdings (UMPQ) , which has acquired four failed banks the past two years, and New York-based First Niagara Financial (FNFG) , which acquired Harleysville National in April.

Others included Louisiana-based Iberiabank Corp (IBKC) , Arkansas-based Home Bancshares (HOMB) and Washington-based Heritage Financial (HFWA) .

From a stock-investing view, KBW said it is currently favor shares of the potential consolidators rather than the sellers. One reason is that it expects takeover premiums to be modest during the early stages of any bank merger wave in the next year.

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