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BofA Deal May Trigger Bank M&A

Bank of America's agreement to sell First Republic Bank to a consortium of private equity firms could be a precursor to more buyout firms targeting healthy bank assets.
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) --

Bank of America's

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sale of First Republic Bank to a group of private equity investors may ramp up deal activity in the bank sector.

Few if any healthy banks have been acquired in the past year. Instead, distressed deals like

Wells Fargo's

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purchase of Wachovia or

JPMorgan Chase's

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acquisition of

Washington Mutual

(WAMUQ.PK) have been the norm.

One major reason for the lack of activity is that most banks are hoarding capital in anticipation of tougher new regulatory requirements that will require them to hold a bigger cushion against future losses. That's why it makes sense that the buyers would be a pair of private equity firms:

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Colony Capital


General Atlantic


Private equity has plenty of cash to put to work. The problem for buyout firms in the banking sector has been regulatory uncertainty. But each transaction that gets done creates a new blueprint for other private equity firms and their attorneys, while suggesting a degree of softening from the Federal Deposit Insurance Corp. It also makes other potential acquirers start to worry they will get left behind if they don't do a deal.

Finally, the First Republic sale would seem to increase the likelihood that


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will sell Banamex, its Mexican subsidiary. Recent press reports have signaled the Mexican government may force such a deal, but because the U.S. Treasury is Citi's largest shareholder, all major moves by Citi have a higher degree of political uncertainty than usual. That BofA was able to reach an agreement to divest First Republic while the U.S. Treasury remains a shareholder suggests Citi may similarly be able to pull off a sale.

An outside spokesman to a private equity firm that has been active in the banking sector offered this interesting tidbit from his client: private equity firms are eyeing investing in regional banks in order to give them enough capital to pursue acquisitions.

Such a deal makes sense both for regional banks that may not have enough capital to do their own deals, and for private equity firms that want to buy banks but are put off by all the regulatory obstacles. The only hitch for private equity, and it's a big one, is they don't have control over the entity they invest in. Still, for potentially acquisitive regionals and super-regionals like

US Bancorp

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, and

Regions Financial

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, a marriage with the right private equity firm could make sense.


Written by Dan Freed in New York