Tuesday, January 11, 2011

Bank on Bank Time

It wasn't long ago that in the US there were almost 10,000 banks and 2,000 Savings & Loans. The numbers of both types of institutions are going down.

What might the future look like? The extreme version is Canada. Canada is home to six banks. Six. But the population of Canada is about 34 million. If the population of Canada were equal to the 310 million in the US, then Canada would most likely have about 60 banks.

However, it's umlikely the US will see the waves of consolidation it would take to shrink the number of US banks to 60, or even 100. But even though the numbers of domestic banks and thrifts are shrinking, it's likely the US banking system will continue to suffer from huge redundancies.

More bank mergers expected in 2011

January 10, 2011, 5:00am EST Related:

Banking & Financial Services

An uptick in activity in the mergers and acquisitions in the banking industry during the end of 2010 is kicking off what analysts believe will be an active M&A period for banks in 2011.

December heralded not only high-profile purchases like Toronto-based Toronto-Dominion Bank’s (NYSE: TD) $6.3 billion acquisition of Farmington Hills, Mich.-based Chrysler Financial Corp., but also smaller deals like the $1.5 billion sale of New Orleans, La.-based Whitney Holding Corp. (NASDAQ: WTNY) to Gulfport, Miss.-based Hancock Holding Co. (NASDAQ: HBHC).

As increasingly more financial institutions repay their federal Troubled Asset Relief Program, or TARP, loans and effectively reduce their debt, speculation is rising about which banks will be at the forefront of the industry. A number of Dayton-area banks could be on the buying side of that 2011 mergers and acquisitions tale.

In a December report, Jefferson Harralson, an analyst with New York-based investment bank, Keefe, Bruyette & Woods, predicted increased activity in the 2011 mergers and acquisitions market.

“While it is difficult to identify which bank is next, we do believe the case for (mergers and acquisitions) is slowly building. More banks are either reaching a breaking point or are near the end of their cumulative losses, in our view,” Harralson said.

Harralson identified First Financial Bancorp. (NASDAQ: FFBC), Huntington Bancshares Inc. (NASDAQ: HBAN), PNC Financial Services Group (NYSE: PNC) and U.S. Bancorp (NYSE: USB) as potential buyers in 2011. Alternatively, his firm placed KeyCorp (NYSE: KEY) on its potential sellers list.

Potential buyers were identified as those banks with above-average profitability, strong capital and growth opportunities. Potential sellers were characterized as those trading below book value.

Also, Richard Bove of Rochdale Securities listed Fifth Third Bancorp (Nasdaq: FITB) as a potential buyer, according to TheStreet.com.

There were a slew of large bank mergers during the recession as some financial institutions were not able to continue on their own. Among the bigger deals were Bank of America (NYSE: BAC) acquiring Merrill Lynch and Wells Fargo (NYSE: WFC) acquiring Wachovia.

Of the local buyers, most in recent months have received votes of confidence from analysts.

Jefferies & Company,Inc., a New York-based securities and investment banking group, in November listed both Huntington and PNC with “buy” ratings. In October, Oppenheimer & Co., a New York-based investment advisory firm, upgraded U.S. Bank to “outperform” from “perform.” PNC and U.S. Bancorp are two of only three large cap banks on the list.

On the other side, Oppenheimer also downgraded KeyBank from “outperform” to “perform.”

Tom Mangan, senior vice president and portfolio manager for Beavercreek-based James Investment Research Inc., said the financial industry has two main choices. While banks could focus on acquisitions, they also could use their renewed stability to pay dividends to shareholders who have weathered the banks’ financial struggles.

Of the top 10 publicly-traded financial institutions with a local presence, only four (First Financial, Park National Bank (AMEX: PRK), LCNB (OTC: LCNB) and Wesbanco (NASDAQ: WSBC)) had annual dividend yields at least in the single digits.

Some banks, however, are positioned to do both, such as PNC and U.S. Bank, Mangan said.

Any efforts to acquire other banks, however, will be under the scrutiny of the federal government.

“There’s a lot of politics involved in this. They’d have to go on bended knee to the regulators to purchase anybody,” Mangan said.

However, for those able to make acquisitions, Mangan agreed KeyBank would be an attractive purchase, given its large network.

Foreign banks that bypassed the U.S. financial crisis are the most likely financial institutions to be on the acquisition hunt, Mangan said. However, regional banks with operations in the Rust Belt could be active buyers and positioned for growth because the area is making an economic comeback, he said.

Labels: , ,


Post a Comment

<< Home