4. "We expect a pickup in the pace of merger activity among smaller banks."
Those on the lookout for mega-bank deals may be disappointed, but smaller regional banks may soon come to terms with low valuations, a weak outlook and the costs of new regulations, spurring consolidations with larger players, writes Lana Chan of BMO Capital Markets in a January research note.
"Many smaller banks are still struggling with lingering credit issues and weak loan demand from small businesses. In addition, these smaller banks do not have the scale to spread the costs of numerous new banking regulations. These factors should cause many of the affected smaller institutions to look to merge with other banks or sell themselves to larger Banks," writes Chan.
The most likely takeover candidates in 2012 are Wayzata, Minn., -based TCF Financial (TCB) with $19 billion in assets and New York-based Sterling Bancorp (STL) with $2.7 billion in assets as a result of a pickup in M&A, "through smaller banks merging or by larger banks acquiring smaller institutions in fill-in deals," writes Chan. BMO Capital Markets rates both banks "market perform", with price targets of $12 a share and $9 a share respectively - less than 12% premiums to current prices.Potential suitors include BBT (BBT), Fifth Third (FITB), M&T Bank (MTB) and U.S. Bancorp (USB) among superregionals and BOK Financial (BOKF), Cullen/Frost Bankshares (CFR) and City National (CYN) among small cap banks, adds Chan. That M&A activity is contingent on targets coming to grips with a diminished outlook on profitability and takeover valuations. Chan notes that "
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV