NEW YORK (
) -- Banks are cheap, but nobody is buying.
While some of the nation's most recognizable banks trade at a fraction of their book value and news from Europe indicates banks across the Atlantic may need to sell U.S. assets at fire sale prices, few big deals have emerged. It may be time for the post-crisis bank consolidation narrative to be tweaked. Below are five ways the industry is changing the bank M&A narrative.
"Just because the M&A cycle hasn't started doesn't mean there won't be one."
As bank prices fell and European stress intensified in the last quarter of 2011, U.S. bank deals dropped 90% compared with 2010 - but that doesn't mean it's a lasting trend, says Christopher McGratty, a bank analyst with
"Those that say bank M&A is dead may be a bit short sighted. Good properties and good assets are still going to get premiums, even in this kind of market," says McGratty. He expects that mergers will accelerate over the course of 2012 as asset values bottom out - the trend will be especially true if bank stock prices rebound, alongside a wider economic recovery. McGratty says to focus on banks with solid deposit franchises and operations in markets with strong demographics and growth prospects like the Midwest and, particularly, the Chicago area.
"We expect the pace [of M&A] to pick up over the course of the year," says McGratty, who believes that stronger banks will use M&A as "one way to accelerate growth", while new regulations, a tough environment for operating margins and an oversupply of banks continue to cloud regional expansion plans.
Because of their deposit franchises, profitability and strong regional demographics, McGratty says that
Boston Private Financial
(BPFH - Get Report)
with $6 billion in assets, Chicago-based
First Midwest Bancorp
(FMBI - Get Report)
with $8.1 billion in assets,
Bryn Mawr Bank Corp
(BMTC - Get Report)
of Pennsylvania with $1.75 billion in assets and Lake Oswego, Or., -based
West Coast Bancorp
with $2.5 billion in assets may be the target of growth-hungry strategic buyers, over the next two-to-three years.
For more on bank picks see,
5 bank stocks that could jump on 2012 M&A
10 community bank M&A targets
KBW currently rates Boston Private, Bryn Mawr Bank Corp and West Coast Bancorp "outperform", while it gives a "market perform" rating to First Midwest. In the firms list of other potential sellers compiled in December, notable large names include
(SNY - Get Report)
(RF - Get Report)
First Horizon National
(FHN - Get Report)
, all with "market perform" ratings.