Still, the big banks could be looking at additional opportunities to grow earnings through acquisitions of a relatively modest size. Bank of America Merrill Lynch analyst Erika Penala said in a note to clients on Tuesday that bidders on the potential sale of General Electric's ( GE) $31 billion portfolio of private label credit card loans could include Citigroup, Wells Fargo, U.S. Bancorp ( USB) and TD Bank ( TD).
Potential BuyersKBW analyst Frank Barlow in a note to clients on Tuesday said that banking industry M&A volume is "disappointing given the increased chatter about M&A we heard about at our February bank conference."
Based on comments from executives during earnings conference calls, while leaving out neutral on-the-fence comments, "larger buyers appear more hesitant about M&A than their smaller counterparts," according to Barlow. "The median buyer with negative commentary is $10.5B in size versus $5.3B for those with positive commentary (excluding the large regionals)," he wrote. KBW maintains lists of potential buyers and sellers among regional banks. The firm on Tuesday updated the potential buyers list to include five large regional banks, although the three that discussed potential deals during their conference calls "were negative about their near-term M&A prospects," according to Barlow. The five large regional banks now on KBW's list of potential buyers include Comerica ( CMA) of Dallas, Fifth Third Bancorp ( FITB) of Cincinnati, M&T Bank ( MTB) of Buffalo, N.Y., U.S. Bancorp ( USB) of Minneapolis and BB&T ( BBT) of Winston-Salem, N.C. Following the completion of the Federal Reserve's stress tests in March, the regulator announced that BB&T would be required to file a revised 2013 capital plan by the end of the third quarter, since its original plan was rejected "based on "a qualitative assessment."
M&T is working to complete its pending acquisition of Hudson City Bancorp ( HCBK), which was announced last August. M&T announced in April that the Federal Reserve had "identified certain regulatory concerns with M&T's procedures, systems and processes relating to M&T's Bank Secrecy Act and anti-money-laundering compliance program," which would delay approval of the Hudson City deal. M&T and Hudson City extended "the date after which either party may elect to terminate the merger agreement if the merger has not yet been completed," to Jan. 31, 2014, but the two companies also said there were "no assurances" the deal would be completed. Shareholders of both companies approved the merger.
Potential SellersHere are the five regional banks on KBW's Potential Sellers List rated "outperform" with the most upside potential, based on the firm's price targets:
- Yadkin Valley Financial (YAVY) of Elkin, N.C. The company's shares closed at $3.98 Monday and KBW's price target is $5.00 for upside potential of 26%. KBW analyst Brady Gailey in a note to clients on April 20 wrote "there could be meaningful upside to this target price if YAVY were to explore alternatives, including a sale of the company," adding that "there would be decent interest of multiple buyers."
- Flushing Financial (FFIC) of Lake Success, N.Y. The shares closed at $15.49 Monday and KBW's price is $19.00. Following the company's first-quarter earnings announcement, KBW analyst Brian Kleinhanzl wrote in a note that "FFIC is still continuing along a slow transformation to a more commercial-like bank and the patient investor will be rewarded owning the shares at the current price and valuation."
- Synovus Financial (SNV) of Columbus, Ga. The shares closed at $2.74 Monday and KBW's price target is $3.25. Synovus is a survival story, with the company dealing with the credit crisis aftermath by rolling over 30 separate bank charters into one and eventually becoming profitable enough to recapture nearly all of its $800 million deferred tax asset valuation allowance (DTA) during the fourth quarter. The company still owes $967.8 million in federal bailout funds received in December 2008 through the Troubled Assets Relief Program, or TAR. In a note to clients on April 24, KBW analyst Jefferson Harralson wrote that "in the near term, if SNV is able to repay TARP with no common raise (something we believe is now a probability), it could help move the shares higher, and potentially help it break out of its range-bound trek."
- United Community Banks (UCBI) of Blairsville, Ga. The shares closed at $10.98 Monday and KBW's price target is $13.00. Harralson wrote in a note on April 29 that although the bank is a potential seller, "we believe its first priority is to improve earnings in order to maintain independence."
- Metrocorp Bancshares (MCBI) of Houston. The shares closed at $10.25 Tuesday and KBW's price target is $11.75. KBW said in the M&A report on Tuesday it sees "significant franchise value for the largest Chinese Ethnic bank in Texas w/California operations."