This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

10 Bank M&A Targets

NEW YORK ( TheStreet) -- It looks like private equity is becoming more aggressive about pursuing acquisitions in the financial industry. Community Bancorp LLC's outbidding of Trustmark ( TRMK ) for Cadence Financial (CADE) is the most recent example.

Several small community and regional banks have been rumored to be targets of private equity investment or acquisitions. So we have compiled a list of banks that will likely be targets for investments by private equity. We selected the largest bank holding companies to post net losses for both the first and second quarters of 2010, leaving out Flagstar Bancorp (FBC - Get Report) and Pacific Capital Bancorp (PCBC) because these companies have already received very significant capital infusions from private equity firms.

"This is a good list of banks. These are all banks that all have credit issues and need capital," Jones Day partner Chip MacDonald said of our top 10 acquisition targets.

"All of these franchises have attributes of good market share in good markets and that makes them potentially attractive to buyers," said Jeff Davis, a managing director with Guggenheim Partners LLC. "All of these could be sellers. M&A can be the icing on the cake, but investors should never buy a bank stock based on bank stock takeover valuation though."

What may be surprising to several investors, is that even though many of these banks are in need of capital, they are considered reasonably healthy. That is mostly because most private equity firms are looking for banks with depressed valuations that they can easily turn around.

"If you invest in a healthy bank or a relatively healthy bank that's the way to go," says Roman Regelman, a Partner with Booz & Company's Financial Services Practice. "You invest a little bit and you can build a platform."

That's exactly what Community Bancshares intends to do with Cadence. The bank-holding company, owned by former bankers, intends to make several investments in both failed and healthy banks.

Several of the banks on our list such as Synovus Financial (SNV - Get Report), United Community Banks (UCBI - Get Report) and Wilmington Trust (WL) racked up big losses in their real estate loan portfolios and are also still participating in the Troubled Assets Relief Program, or TARP. "With the economy in neutral, there will be a ton of M&A activity, but it is not going to be like shooting fish in a barrel," says Davis. "There are several hurdles for transactions to clear."

Some of these challenges will be regulatory. Regulators cap any single PE firm at 24.9% investment in a bank, unless the PE firm becomes a bank holding company, putting under a much heavier regulatory burden. That's why there will be several smaller PE firms and consortiums investing in financial institutions.

"A common trend is that most of these investments are made by small PE firms established by former bankers," said Regelman. He added that regulations have kept many larger private equity firms away from investments in banks. "It's unlikely that you will see a TPG or Bain investing in a 24% stake in a bank," he said.

CBC is just one of several small PE firms interested in expanding their financial services investments. Warburg Pincus, Carlyle and Wilbur Ross have also made recent investments in banks.

Here are the top 10 banks likely to be targeted by private equity firms, by increasing asset size:
1 of 11

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DRL $0.11 0.00%
UCBI $20.13 0.00%
FBC $23.67 0.00%
PNFP $49.17 0.00%
SNV $31.16 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs