Magazine article American Banker

Tex. M&A Watch Turns to Sterling with Amegy Out

Magazine article American Banker

Tex. M&A Watch Turns to Sterling with Amegy Out

Article excerpt

With Zions Bancorp. having won an apparent bidding war for Houston's Amegy Bancorp, analysts say the merger-and-acquisition spotlight will shift to Texas' remaining independent banks, especially Sterling Bancshares Inc.

Swiss Reinsurance Co.'s Fox-Pitt, Kelton Inc. initiated coverage on five Texas banking companies Wednesday, and Fox-Pitt analyst Todd L. Hagerman said Sterling's subpar profitability "puts it at the top of anyone's list" of takeout candidates.

The $3.4 billion-asset Sterling, also of Houston, sold its mortgage company for $49 million two years ago and it has yet to fully deploy that capital or replace the earnings it lost. The $7.8 million profit it reported for the quarter that ended March 31 was 30% below its net income for the same quarter in 2003.

At the same time, its return on equity for the quarter, 9.88%, was the lowest of any of the 10 biggest Texas-based bank companies -- with the exception of the $7.6 billion-asset Amegy.

"Time is running out," Mr. Hagerman said Wednesday. "Sterling has an attractive franchise, particularly in Houston, but they've struggled in terms of profitability. Their returns have been below average."

Amegy announced Wednesday that it had agreed to sell itself to Zions for $1.7 billion, or roughly 2.83 times Amegy's book value (see story page 1). Compass Bancshares in Birmingham, Ala., was also said to have been in the running for Amegy.

Curtis Carpenter, managing director of Alex Sheshunoff Investment Banking in Austin, said out-of-state companies looking to enter the Texas market will probably put even more money on the table as the number of targets with operations in the state's major metropolitan areas dwindles.

That means another Houston company, Prosperity Bancshares, will get some attention as well, but most of the focus will be on Sterling, Mr. Carpenter said.

"Sterling's earnings have never fully recovered from the sale of their mortgage company," he said. …

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