Bank Of Montreal Deal Another Sign Regional Banks Eying M&A
18 December 2010 - 3:10AM
Dow Jones News
The takeover of Marshall & Ilsley Corp. (MI) by Bank of
Montreal (BMO, BMO.T) announced Friday morning is the latest sign
regional banks may be looking more toward mergers and acquisitions,
which has sent their shares climbing.
The deal, with a solid premium and no government assistance, is
seen as another early step toward a consolidation many had been
looking for and a positive sign for the health of the banking
industry in general.
The KBW Regional Banking index climbed 1.1%, while the KBW Bank
index, which tracks large banks, rose 1.5%. Both were far
outperforming the broader market, with the Standard & Poor's
500-stock index down slightly on the day.
Among the biggest movers were Regions Financial Corp. (RF) and
Synovus Financial Corp. (SNV), two banks that still owe the
government funds from the Troubled Asset Relief Program and have
yet to turn profits.
BMO, in the latest move by a Canadian bank to expand its
operations in the U.S., offered $4.1 billion in the all-stock
takeover of the Wisconsin-based bank. As measured by Thursday's
close, the deal valued M&I shares at $7.75, a 34% premium.
M&I was still weighed by $1.7 billion it owes the Treasury
Department for funds it received from TARP and had seen its market
value plummet in the face of commercial lending and real estate
loan problems. Analysts had said it likely would need more capital
to meet new requirements for safety nets and it was still recording
losses.
Investors took the BMO rescue as a good sign for other banks
that still owed TARP funds and have yet to return to profitability,
such as Regions and Synovus.
Regions shares rose 4.2% to $6.39, the second time this week
shares have rallied on merger talk. Regions still owes the
government $3.5 billion and has had continued problems with
non-performing assets.
Synovus, meanwhile, rose 5.2% to $2.62 as it still owes $968
million in TARP funds and posted a $181.4 million loss for its
third quarter.
Among the other banks trading higher Friday were KeyCorp (KEY),
Fifth Third Bancorp (FITB) and SunTrust Banks Inc. (STI), all of
which have yet to return TARP funds. Key added 2.6% to $8.30, Fifth
Third rose 1.9% to $14.19 and SunTrust climbed 2.3% to $26.45.
Earlier this week, Moody's Investors Service was among the
latest to proclaim that a wave of consolidation is likely for large
regional banks. The research report said the current analysis of
the banks capital positions is likely to clarify the divisions
between weak and strong banks, opening the door for takeovers
across that divide.
New regulations in the U.S. are expected to hamper revenue
growth at the banks, making slim margins and slow loan growth even
more disconcerting. Analysts have said that could also scare some
banks into the hands of stronger competitors.
Research firm and investment bank Keefe Bruyette & Woods
said last week that merger activity is likely to increase as banks
look to spend the large amounts of capital they have sitting idle
on their books.
-By David Benoit, Dow Jones Newswires; 212-416-2458;
david.benoit@dowjones.com
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