Magazine article American Banker

Repaying Tarp Expected to Loosen Up Bank M&A

Magazine article American Banker

Repaying Tarp Expected to Loosen Up Bank M&A

Article excerpt

Byline: Matthew Monks

The R&R could be ending for bank M&A.

The dormant market for bank mergers and acquisitions may be poised to rebound once a wave of healthier financial companies repay their Troubled Asset Relief Program funding this month, analysts and bankers said.

"We're not going to see a torrent yet, but I suspect we'll start to see a pickup [of merger activity] with the non-Tarp banks as we get into 2010," said Jeff Davis, a senior vice president and the research director at Howe Barnes Hoefer & Arnett Inc. "Paying off the Tarp frees these banks up to do private transactions."

Outside of federally assisted deals for failed banks, no major bank acquisition has been made since PNC Financial Services Group Inc. closed its $5.6 billion purchase of National City Corp. on Dec. 31.

That deal cast a pall over the bank M&A market as PNC was criticized by lawmakers for funding the purchase out of its $7.6 billion of Tarp money. The backlash made other relatively healthy banks wary of doing deals.

Of course, the mass deterioration of credit quality has also hampered activity.

Still, David Hendler, a senior analyst at CreditSights Inc., said the Tarp program "effectively halted" bank mergers. He, too, expects them to pick up as banks repay Tarp - something expected to begin this month - and take advantage of their relative financial heft by going shopping.

In a report last month, Hendler mentioned JPMorgan Chase & Co., U.S. Bancorp, BB&T Corp, Morgan Stanley and Goldman Sachs as the U.S. banking companies best positioned to do deals, though the latter two have both played down their interest in buying a retail bank.

Hendler said all of them have the capital to absorb acquisition targets weighed down by money-losing assets. All but Morgan Stanley passed the government stress test, and it has already raised $2. …

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