More Acquisitions, Failures In Store For US Banks

MADLEN READ

NEW YORK (AP) — The U.S. government says it won't let any of its 19 largest banks fail. That doesn't mean they'll all be around in a couple years.

This week's stress tests showed that while many big banks need more capital, regulators aren't declaring them insolvent. But that won't necessarily stop the turnover in bank ownership around the country. As the economy struggles to stabilize this year, customers and investors can expect more acquisitions, more failures, and a growing gap between the weak banks and the strong.

"This is when the weak fall by the wayside," said Bert Ely, an independent banking consultant. "We're going to see consolidation. That's inevitable."

Most mergers and acquisitions, to be sure, will probably happen among the nation's smaller banks.

"For most of the (19) banks on the list, they will likely be able to raise the capital they need without having to sell themselves," said Jim Sinegal, equity analyst at Morningstar.

More banks failed in the first four months of 2009 than in all of 2008, and analysts say the pace is likely to pick up. When a bank collapses, its branches and assets typically are bought up by a bigger, stronger bank in the area. If the government applied its stress test to the roughly 8,300 other U.S. banks out there, Rochdale Securities analyst Richard Bove has noted, at least 150 of those institutions would be deemed insolvent.