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Huntington Revives M&A Strategy

Huntington Bancshares plans to "stick close to its knitting" when it eventually participates in bank consolidation.



) --

Huntington Bancshares

(HBAN) - Get Huntington Bancshares Incorporated Report

is gearing up for acquisitions but will limit any deals to its existing footprint.

Huntington announced on Monday that it had hired Scott Brewer, managing director of the financial institutions group at Stifel Nicolaus & Co. in the newly created role of corporate development director. Brewer will lead its merger and acquisition strategies and activities, the regional bank said.

The announcement was a clear signal that the bank, with $52 billion in assets, is not looking to sell - something that the market may have assumed as it struggled through the credit crisis.

"There is no urgency and a

a deal is not imminent," says Jay Gould, Huntington's head of investor relations. "We are trying to position ourselves for increased consolidation in our area. We think that as banks start having to deal with issues, such as increased regulation, it's going to make it increasingly costly for some to comply. At some point

those banks are going to have difficulty following rules or earning profits and will seek other avenues to reward their shareholders."

Huntington's focus on M&A signals that the company is on much better ground when compared to the past several years.

Huntington Bank

has been struggling against the soured Midwest economy, particularly with its commercial real estate portfolio. Additionally, its acquisition of

Sky Financial

in 2007 added to the bank's problems because of Sky's large relationship with Alt-A and subprime lender

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Franklin Credit Management

. Since that time Franklin's loans deteriorated significantly.

Huntington's troubles with the

Franklin Credit

finally abated last quarter when, after seizing some collateral, the bank moved the loans into its held-for-sale category. Huntington was then able to sell the bulk of the Franklin-related residential mortgages -- $274 million worth -- and charge off the other $75 million.

So far this year the regional bank posted two consecutive quarterly profits and chairman and CEO Stephen Steinour has stated that the bank expects to be profitable for the year. That is despite still being under restrictions related to its participation in the U.S. Treasury's Troubled Asset Relief Program (TARP).

It also is of note that chief executive Steinour is a former top executive at

Citizens Financial

, the U.S. banking operations of

Royal Bank of Scotland

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, which was an acquisitive bank before the financial crisis.

So far under Steinour's watch, Huntington made one acquisition with the assistance of the

Federal Deposit Insurance Corp.

. In October 2009 Huntington purchased the deposits and branches of Michigan-based Warren Bank.

The bank would be interested in doing more strategic acquisitions in the future, most likely in-footprint mergers, given that the Midwest is one of the least consolidated areas in the U.S. and the bank already has an established reputation, Gould says.

Huntington's franchise currently encompasses 600 banking offices located in Indiana, Kentucky, Michigan, Ohio, Pennsylvania and West Virginia. The company also has private trust offices in Florida and mortgage banking offices in New Jersey and Maryland.

Gould says that they bank plans to "stick close to its knitting" when it eventually begins to purchase other bank properties and will target properties in its region. Gould adds that hiring Brewer would be "getting us prepared for that eventual day," he says.

Yet Dr. Anthony Plath, an associate finance professor at University of North Carolina Charlotte Belk College of Business and a former Huntington employee, says Huntington needs to follow in the footsteps of another large Midwestern bank,

Fifth Third Bancorp

(FITB) - Get Fifth Third Bancorp Report

, which at the top of the market expanded south to take advantage of the high growth areas in Florida.

Considering the difficult job it will be for banks to grow organically in the near future, they need to look for "markets that may be stressed right now, but that will recover at a more rapid rate," Plath says. "You can say Florida is stressed, but not stressed nearly as much as Michigan and Ohio."

Plath suggested that Huntington may also benefit if it picked up smaller banks in Texas and the Southeast. "You don't want to get deeper in that Midwest market. There's just no future in it. If they're going to want to be a survivor, that's what they need to do," he says.

Huntington's Gould dismissed the idea.

"That's going to lead you off to Las Vegas and Florida. That always seems attractive, but typically

if you are the last

and smallest player in a market creating profitable growth is very, very hard," Gould says.

Rather, it's more advantageous for the bank to build on already existing reputation and brand awareness in its Midwestern market, Gould says. "You go to Florida and they say 'who is that Huntington?'"

(Huntington sold the 59 branches it did have in Florida to

SunTrust Banks

(STI) - Get SunTrust Banks, Inc. Report

in late 2001.)

Remaining in its current footprint has another advantage, argues John Chrin, the executive in residence at Lehigh University's Global Financial Services Executive-in-Residence and the former head of JPMorgan Chase's financial institutions' M&A group. "You're not going to have the competition that you would have in higher growth markets, which should result in better pricing as an acquirer."

Chrin adds that Huntington's acquisition strategy may not depend on whether it first repays TARP, pointing to

General Motors'

(GM) - Get General Motors Company Report

agreement to acquire




Regional bank

consolidation is becoming an increasingly talked about topic these days.


banks just have fatigue," says Chip MacDonald, a partner in the financial institutions group at Jones Day. "They've got this credit crisis and the demands of regulators that are anticipated from Dodd-Frank. There has been a lot of capital raising, but a lot of


still haven't been able to raise capital. In some cases that may be a motivator

to sell."

MacDonald also points to the increasing competitiveness of failed bank deals with assistance from the FDIC.

Failed bank deals have gotten more expensive for buyers because of the requirement to take on additional credit risk while there is a "re-emergence of a small deposit premium" with some failed banks, MacDonald says.

"That means people are paying more and taking on more risk of the failed bank," MacDonald says.

Banks are saying "maybe I can deal with more certainty outside the failed bank world," he adds. There is opportunity for Huntington and other banks to "buy at the bottom of the market where there are genuine bargains and opportunities to do deals."

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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