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NEW YORK (
TheStreet) -- The pace of banking industry consolidation has lagged this year. This is no surprise, since so many banks are trading below book value.
According to SNL Financial, there were 105 bank and thrift deals announced this year through Tuesday for a total value of $16.3 billion. While the pace of deals trailed the 207 announced deals in 2010, last year's total value of announced deals was lower, at $12.1 billion. Among deals for which the underlying detail is available, the average purchase price this year has been 110% of the targets' tangible book value, declining slightly from 111% last year.
FBR Capital Markets analyst Brett Scheiner says that "in the near term, whole bank M&A of community banks at big prices is either going to be relatively slow or on hold entirely, as management teams attempt to firm-up their confidence on both their own and potential acquired loan books' credit."
Over the long term, however, it seems likely that the industry's remarkable consolidation over recent decades will continue.
V. Gerard Comizio -- the chair of the Paul Hastings Banking and Financial Institutions practice, in firm's the Washington, D.C., office -- says that "a large number of banks are in strategic planning mode," with major considerations including Basel III capital requirements, which Comizio says are facing increasing resistance from the industry and "the aggregate regulatory compliance burden of the Dodd-Frank Act, which hasn't yet to be felt."
Comizio says "many community banks have determined the regulatory and capital burdens are too much for them," and hints that much larger deals may be coming. Every bank with over $50 billion in assets will be required to submit to the Federal Deposit Insurance Corp. a contingency plan for a quick, orderly liquidation in the event of failure, while bank holding companies are required to submit similar plans to the Federal Reserve. "If the regulators don't accept your living will submission, you could be asked to raise capital or divest assets," he says.
The largest deal announced so far during 2011 is
Capital One's (COF - Get Report) agreement to acquire
ING Direct from
ING Groep (ING), valued at $9 billion, or just over tangible book value. The deal is facing opposition from consumer groups, and after a request from Rep. Barney Frank (D., Mass.), the senior Democrat on the House Financial Services Committee, the
Federal Reserve agreed to
extend the public comment period preceding the regulator's approval of the deal.
The second-largest largest deal announced this year is
PNC Financial Services Group's(PNC) agreement to purchase
RBC Bank (USA) from
Royal Bank of Canada (RY), for $3.45 billion in cash and stock, which is just below RBC Bank (USA)'s tangible book value, according to SNL.
This year's third-largest announced bank deal was
Comerica's(CMA) acquisition of
Sterling Bancshares(SBIB), valued at $1 billion, or 230% of tangible book value. The deal closed in July.
The next largest 2011 deal was
People's United Financial's (PBCT) agreement to acquire Danvers Bancorp for $489 million in cash and stock. SNL values the deal at 184% of Danvers Bancorp's tangible book value. The deal was completed in July.
Earlier this year, when so many bank stocks were trading much higher, several analysts helped us identify a group of 10 community banks that could be likely targets for acquirers. For the three potential targets identified by Scheiner, the analyst now says "at the current valuations, I can't image that they'd be in a hurry to sell."
The following are updated looks at the
10 community bank targets, by ascending asset size: