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Five Bold 2010 Predictions for Financial Stocks

Stocks in this article: BAC C GS AIG

What if JPMorgan Chase Buys Another Big Bank?

JPMorgan Chase (JPM) made out big with its fire-sale acquisitions of Bear Stearns and Washington Mutual in 2008, adding significantly to its capital markets business and branch presence, respectively. Could it look to repeat this success in 2009, albeit in a much different market environment?

The FDIC-led sale of Washington Mutual to JPMorgan conveniently added branches and deposits in some of the most hard-hit states in the country - California, Texas (where Chase already had a sizable presence) and Florida, as well as much of the West Coast.

But the New York-based financial institution still lacks much of a footprint in the Southeast region.

Bank failures, which currently stand at 130 for 2009, are expected to continue to pile up in 2010, given the depths of the mortgage mess as well as a growing commercial real estate problem that could put many small and mid-size regional banks at risk. Conditions might once again conspire for JPMorgan to make a fortuitous pick-up of bank gem (or gems) on the cheap.

The juicier possibility is a blockbuster deal, and Anton Schutz, president of Mendon Capital Advisors and the fund manager to Burnham Financial Services, doesn't discount the idea that, if the economy stabilizes further, Chairman and CEO Jamie Dimon might decide to make a big splash if he deems the acquisition essential.

Schutz says Dimon's tastes could run from smaller banks like Synovus (SNV) to something much bigger like SunTrust Banks (STI) or Regions Financial (RF), among others.

JPMorgan certainly has the capital to fund another deal. As of Sept. 30, it had a Tier One capital ratio of 10.2% and a Tier One common capital ratio of 8.2%, although the industry as a whole is still waiting for clarity on what higher requirements regulators may put in place going forward.

Still another bank acquisition does not come without its issues. JPMorgan is already tapping up against the 10% national deposit market share limits with $2.04 trillion in assets as of Sept. 30, with its more than 5,000 branches and businesses spreading from investment banking to credit cards. An acquisition of yet another large bank might not get clearance in the current political environment, some say. Already Dimon has publicly argued that, while companies should not be "too big too fail," they also shouldn't have caps on their sizes.

"That any eventual transaction will be their last bank deal because from a market share perspective they're probably going to be as big as they're able going to get," Schutz says.

--Written by Laurie Kulikowski in New York.

Next: What if Bank of America Spins Off Merrill Lynch?>>>

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