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5 Bank Takeout Targets, Up to 26% Upside: KBW

NEW YORK ( TheStreet) -- There have been plenty of large M&A deals announced this year, but none of them in banking.

The largest U.S. banks have to be very selective when considering acquisitions because of the difficult regulatory and political environment. The outcry against "too big to fail" banks seems stronger than ever, as evidenced by the sponsorship of the Terminating Bailouts for Taxpayer Fairness Act by Senators Sherrod Brown (D., Ohio) and David Vitter (R., La.), which would force "megabanks" with total assets of over $500 billion raise large amounts of additional capital or break up their business to maintain Tier 1 common equity ratios of 15% of total assets.

The Brown-Vitter bill would walk away from the Basel III agreement on international capital standards for banks, and also from enhanced capital requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. While it has little chance of passing, Dodd-Vitter illustrates how unlikely we are to see any of the "big six" U.S. banks, including JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C - Get Report), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS), greatly expand through an acquisition.

The drawn out saga of the Capital One's (COF) purchase of ING Direct (USA) and HSBC's (HBC) U.S. credit card portfolio illustrate how difficult it can be for a large U.S. bank to get a deal done, following the credit crisis and under Dodd-Frank. Capital One announced the ING Direct (USA) deal in June 2011 and the HSBC credit card deal in August 2011. Following delayed approvals by the Federal Reserve and the Office of the Comptroller of the Currency, following an outcry against the acquisitions by "consumer advocates," the ING deal was completed in February 2012 and the HSBC card deal was closed in May 2012.

Still, the big banks could be looking at additional opportunities to grow earnings through acquisitions of a relatively modest size. Bank of America Merrill Lynch analyst Erika Penala said in a note to clients on Tuesday that bidders on the potential sale of General Electric's (GE) $31 billion portfolio of private label credit card loans could include Citigroup, Wells Fargo, U.S. Bancorp (USB - Get Report) and TD Bank (TD).
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