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5 Ways Bank Mergers are Changing

Currently, European giants with significant U.S. operations like Royal Bank of Scotland (RBS) and Santander (STD) have begun to shop their non-European businesses and specialty assets like aviation finance arms, while U.S -based Regions Financial (RF - Get Report) has been in up and down discussions to sell its brokerage Morgan Keegan and Citigroup (C) has sought a buyer for its consumer lending unit OneMain. While, both assets have seen deal talks stall in recent days, they're indicative of the businesses that capital hungry banks may look to divest.

We project a rebound in deal activity in 2012 as capital deployment gains steam post [capital analysis and review], banks continue to seek asset generating opportunities, seller expectations likely become more reasonable amid a still challenging macro backdrop, and as foreign banks pursue asset divestitures to generate needed capital," writes Marquardt. Evercore expects M&A to pick up with asset purchases most likely as some banks seek to grow assets, while sellers accept prices that make purchases more attractive.

1. "M&A potential real, but not necessarily a near term catalyst."

Underneath all expectations of bank consolidations is the disclaimer that deals are subject to an improving economy, which will push the value of bank assets and stock prices upwards. With U.S. growth still sluggish and stock gains muted in 2011, many now expect that momentum in the economy and the deals market will be deferred to the second-half of 2012.

"We believe that bank M&A will pick up in the second half of 2012 as Troubled Asset Relief Program [TARP] repay catalysts emerge and the economy progresses and as a result, we believe there is a meaningful opportunity for the group to outperform the rest of the financial sector in 2012," writes Jefferson Harralson of KBW in a January research note. Harralson adds that consolidations are most likely among small-to mid-cap banks, because of looser regulatory restrictions such as a lack of impact from the Durbin Amendment - and a lack of European exposure.
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