This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Deal: Banks Look to Sell Parts Rather Than Make Acquisitions

NEW YORK ( TheStreet) -- Wall Street banks are more likely to divest and sell parts of their operations than make any acquisitions as new regulations make it more expensive to be a large bank.

The prediction from dealmakers and advisers comes as new capital requirements loom and concern rises around creating institutions that are systemically risky or "too big to fail."

But that doesn't mean that the financial services sector will be moribund when it comes to dealmaking, with more small bank consolidation still on the horizon.

Plus, despite widespread retrenchments among Wall Street banks, opportunistic acquisitions in wealth management remain attractive, according to Eric Lohmeier a co-founder of midmarket investment bank NCP Inc.

Morgan Stanley is finishing its $4.7 billion acquisition of the remaining 35% of its wealth management venture with Citigroup Inc. after winning Federal Reserve approval, and Lohmeier said healthy margins and an aging demographic made the sector attractive.

"Banks are looking for stability in their revenues and wealth management has fairly decent profit margins," Lohmeier said.

The banking sector has seen sparse merger activity since the credit crisis, with only nine deals since 2010 with a deal value greater than $1 billion according to Deutsche Bank AG.

Among those deals were Capital One Financial Corp.'s 2011 acquisition of ING Direct USA for $9 billion and PNC Financial Services Group Inc.'s acquisition of RBC Bank for $3.45 billion that same year.

Jeff Davis, the head of financial institutions group at consultancy Mercer LLC, said there was the distinct possibility of Wall Street banks breaking up their operations.

"We've got an environment with a lot of pressure on margins and returns on equity with reduced trading volumes, where banks are handicapped by the Volcker Rule and management are taking a hard look at their operations," he said. "[Large banks] won't be acquirers of anything significant, certainly not depositories."

Davis said plausible scenarios included Chase Bank being spun out of JPMorgan Chase & Co., a hive-off of the JPMorgan's credit card portfolio or a Citigroup breakup of its commercial banking from its global bank and markets operations.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JEF $0.00 0.00%
BAC $14.11 0.43%
C $44.41 0.41%
GS $158.85 -0.43%
JPM $61.60 0.59%


Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs