Low-trading banks likely to be bought
ASSOCIATED PRESS ARCHIVE
PNC, whose headquarters is in downtown Pittsburgh, is confident it can digest another bank, CEO James E. Rohr said.
By DAVID HENRY and DAKIN CAMPBELL
Bloomberg News
Published: Saturday, September 11, 2010 at 1:00 a.m.
Last Modified: Friday, September 10, 2010 at 5:52 p.m.
U.S. Bancorp and PNC Financial Services Group may lead the biggest boom in bank takeovers since 2007, and this time, the largest lenders can only sit and watch.
POTENTIAL TARGETS
Banks considered to be good buys now include:
KeyCorp
SunTrust Banks
Regions Financial Corp.
SOURCES: KBW Inc., Rochdale Securities and CreditSights Inc.
Related Links:
* Bradenton's Horizon Bank is seized and sold
* Gateway Bank debut on ratings is excellent
Bank loans outstanding have dropped 10 percent since October 2008, the deepest contraction in more than 35 years, according to Goldman Sachs.
That has left banks with unused lending capacity, idle cash and depressed market values, making laggards ripe for consolidation, according to KBW Inc., Rochdale Securities and CreditSights Inc.
Potential targets include KeyCorp, SunTrust Banks and Regions Financial Corp.
Buyers probably will not have to bid against the four biggest U.S. lenders, keeping a lid on prices. Bank of America Corp., JPMorgan Chase and Wells Fargo each controls about 10 percent or more of U.S. deposits, the most permitted by regulators when considering takeovers, and Citigroup is trying to sell assets. Their absence leaves the field to the biggest regional banks such as U.S. Bancorp and PNC.
"Those companies have the luxury of looking at anything," said KBW analyst Christopher McGratty in New York.
Buyers are more likely to act than they were last year, now that the industry has stabilized, he said. "If you feel you have a fair assessment of what your own assets are worth, you feel better about looking at others."
Executives at Minneapolis-based U.S. Bancorp, Pittsburgh- based PNC, BB&T Corp. and People's United Financial Inc. have all made acquisitions and say they are hunting for more. U.S. Bancorp, ranked fifth by deposits among commercial banks, acquired at least 10 banks since the credit crunch started, while PNC is sixth after buying National City Corp.
The catalyst for deals could be announcements in November of minimums for capital and liquidity from international regulators meeting in the Basel Committee on Banking Supervision, according to Richard Bove, analyst at Rochdale Securities in Lutz. Banks that cannot meet the thresholds may become targets, and buyers will know how much capital deals will require, Bove said.
Banks trading at large discounts include SunTrust, Regions and Marshall & Ilsley Corp., Bove said. Atlanta-based SunTrust trades at about 0.7 times book value, Regions at 0.6 and Marshall & Ilsley at 0.7, according to Bloomberg data. Regions, Alabama's biggest bank, is based in Birmingham. Marshall & Ilsley is based in Milwaukee.
KBW, which specializes in banks, named 38 potential buyers, 26 possible sellers and 11 buyers that could become sellers. Targets include Boston Private Financial Holdings Inc. of Boston, Susquehanna Bancshares Inc. of Lititz, Pa., and Wilmington Trust Corp. of Wilmington, Delaware.
Takeover valuations will be one-third lower than during the last merger binge of 2000 to 2007, according to KBW.
Prices will be about 15 times long-term annual earnings and 1.5 times tangible book value, KBW said.
Spokesmen for banks named as targets declined to comment or did not respond to inquiries.
U.S. Bancorp will continue to "opportunistically acquire," Chief Executive Officer Richard K. Davis said in a July conference call.
PNC finished integrating National City branches and accounts in June, six months ahead of schedule, CEO James E. Rohr said in a July conference call. PNC's confidence that it can digest another bank "is higher than it has ever been," Rohr said.
While the biggest banks are sidelined, competition may emerge from Canada and Europe. Banco Santander has been stalking Buffalo-based M&T Bank Corp., according to the Financial Times, while Bank of Montreal and Royal Bank of Canada said they may expand in the United States.
Bank loans in the U.S. fell $869 billion to $8.24 trillion from October 2008 through early August, according to Goldman Sachs. The decline is more than twice the 4 percent slide in 2001. At U.S. Bancorp, average loans grew in the second quarter by 4 percent annually. Without acquisitions, they would have dropped 2.7 percent.
In that kind of environment, where demand for what banks do is sinking, "the only way you are going to grow assets is to buy another bank," Miller said.
heraldtribune.com |
