MADLEN READ

NEW YORK (AP) ¿ The U.S. government says it won't let any of its 19 largest banks fail. That doesn't mean they'll all be around in a couple years.

This week's stress tests showed that while many big banks need more capital, regulators aren't declaring them insolvent. But that won't necessarily stop the turnover in bank ownership around the country. As the economy struggles to stabilize this year, customers and investors can expect more acquisitions, more failures, and a growing gap between the weak banks and the strong.

"This is when the weak fall by the wayside," said Bert Ely, an independent banking consultant. "We're going to see consolidation. That's inevitable."

Most mergers and acquisitions, to be sure, will probably happen among the nation's smaller banks.

"For most of the (19) banks on the list, they will likely be able to raise the capital they need without having to sell themselves," said Jim Sinegal, equity analyst at Morningstar.

More banks failed in the first four months of 2009 than in all of 2008, and analysts say the pace is likely to pick up. When a bank collapses, its branches and assets typically are bought up by a bigger, stronger bank in the area. If the government applied its stress test to the roughly 8,300 other U.S. banks out there, Rochdale Securities analyst Richard Bove has noted, at least 150 of those institutions would be deemed insolvent.

Jamie Dimon, CEO of JPMorgan Chase & Co., said in a conference call earlier this week that consolidation among banks is likely to accelerate, partly because the nation's smaller banks are simply not as diversified.

"Even if you are a well-run bank in a locale that is having terrible real estate problems, you may not be able to survive," he said.

But even bigger banks could still buy, Ely said, or themselves be bought.

The extremely large banks with capital shortfalls ¿ like Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. ¿ are unlikely to be on the prowl. But JPMorgan Chase emerged from the stress test with no capital requirements. It passed even after acquiring the nearly-collapsed investment bank Bear Stearns Cos. last year and the failed thrift Washington Mutual Inc.

That could leave JPMorgan in the position of buying again this year, analysts say. During his call last Monday, Dimon said his bank was "busy" with recent acquisitions but did not rule out another one.

Meanwhile, foreign banks ¿ notably stable Canadian banks like Royal Bank of Canada, Toronto Dominion and Bank of Montreal ¿ could end up targeting mid-sized banks such as SunTrust Banks Inc. of Atlanta, KeyCorp of Cleveland, or Fifth Third Bancorp of Cincinnati, Ely said.

Whether small or large, banks have learned from the recent spate of shotgun match-ups that determining an appropriate acquisition price is key.

JPMorgan bought WaMu and Bear Stearns at steep discounts in 2008, and with a government backstop on potential losses. But Bank of America ran into trouble with its shareholders after buying Merrill Lynch at a premium. Wells Fargo also paid more for Wachovia Corp. last year than Wachovia's market value at the time.

"Everyone is looking for a real bargain here," said Standard & Poor's bank analyst Tanya Azarchs. She predicted that upcoming deals will mostly involve strong banks targeting weak ones with few options.

It's possible banks that are solvent now might not be as healthy by the end of the year. Loan losses, like the unemployment rate, tend to lag the rest of the economy. So even if the economy is improving by late in the year, as the Federal Reserve Chairman Ben Bernanke guesses it will, loan losses could still be escalating.

Alan Villalon, senior research analyst for the Minneapolis-based First American Funds, pointed out that some mid-size banks like Synovus Financial Corp, Zions Bancorp, Huntington Bancshares Inc. and Marshall & Ilsley Corp. did not undergo public stress tests.

"As credit losses keep rising, that is going to put pressure on these lower-tier banks," said Villalon. "All it takes is a couple quarters of pressure, and they're coming to the table asking for help."

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.