Regional Banks May Benefit From Equity Plan

The capital injection could also grease the wheels for acquisitions of regional banks, particularly as the housing and credit crisis extends both in longevity and beyond just subprime mortgages to include most forms of lending engaged by banks -- from credit card lending to prime mortgages to the beginnings of commercial lending troubles.

While the mid-cap banks have been less exposed to toxic securities dependent upon the mortgages underneath them, the banks are certainly exposed to housing- and consumer-related credit. For most small banks, mortgage banking and other types of lending are key parts of their business. As the credit boom expanded in the earlier part of the decade many banks began originating riskier loans and then selling them for securitization. The credit crisis has left more than one in dire straits as the credit markets seized up leaving bad mortgages on the banks' balance sheets.

In the last month alone two of the top ten largest banking institutions have been acquired -- JPMorgan Chase (JPM Quote) acquired much of Washington Mutual, which was seized by regulators last month after a run on deposits. Last week Wells Fargo (WFC Quote) won its battle with Citi to purchase southeastern powerhouse Wachovia (WB Quote).

Speculation is picking up that National City (NCC Quote), also hammered by the housing meltdown, is also looking for a buyer. Just Monday Banco Santander (STD Quote) announced plans to acquire the remaining portion that it does not already own of Sovereign Bancorp (SOV Quote) for $1.9 billion.

"In the case of Wells Fargo, there would be less question as to where it will get equity for its acquisition of Wachovia," writes Mike Mayo, an analyst at Deutsche Bank, in a note early Monday. "Citigroup will have equity to buy a regional bank. Other banks can potentially pursue bank acquisitions more easily with capital that is more readily accessible."