NEW YORK ( TheStreet) -- Financial reform meant to provide relief and opportunity for small banks and shrink large banks will actually foster a wave of consolidation in the industry, according to bank stock analyst Dick Bove. The role of taking issue with government policy is a familiar one for Rochdale Securities's Bove, who told clients in a research note Wednesday that Congress is contradicting itself on reform when it comes to the small banks. "If the regulators do what Congress has mandated, the new law will drive these companies to sell their businesses or simply fail," Bove says. "It is creating a significant opportunity for bank acquirers to buy small banks at distressed prices
and forming accretive deals." Bove's primary concern centers around eliminating trust preferred securities -- a primary source of funding for small banks -- as a legitimate capital source. Small banks will have to look elsewhere for capital sources as existing trust preferred securities mature, he writes.
The large money-center banks like Bank of America ( BAC - Get Report) and JPMorgan Chase ( JPM) will likely sit this round of M&A out though, since they are seen by regulators as already being too big. Citigroup ( C) for one has already said it plans to concentrate on its regional consumer business outside of the U.S. It is not looking to expand domestically, other than a few key U.S. cities. Instead the next wave of buyers will be the so-called super regional banks, such as U.S. Bancorp ( USB - Get Report) , BB&T ( BBT - Get Report) and PNC Financial Services ( PNC - Get Report), as well as mid-size banks such as First Horizon ( FHN - Get Report). U.S. Bancorp and First Horizon have spoken of their desire to take advantage of the increasing dislocation amongst small banks as a result of the continued struggling economy and financial reform. "With many banks seeking to sell at the same time, a buyers' market will develop," Bove says. "The big banks will get accretive deals and they will get bigger. The small banks will continue to fade away." --Written by Laurie Kulikowski in New York.