(Bloomberg) U.S. Bancorp and PNC Financial Services Group Inc. may lead the biggest boom in bank takeovers since 2007, and this time, the largest lenders can only sit and watch.
Bank loans outstanding have dropped 10% since October 2008, the deepest contraction in more than 35 years, according to Goldman Sachs Group Inc. That's left banks with unused lending capacity, idle cash and depressed market values, making laggards ripe for consolidation, according to KBW Inc., Rochdale Securities LLC and CreditSights Inc. Potential targets include KeyCorp, SunTrust Banks Inc. and Regions Financial Corp.
Buyers probably won't have to bid against the four biggest U.S. lenders, keeping a lid on prices. Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. each controls about 10% or more of U.S. deposits, the most permitted by regulators when considering takeovers, and Citigroup Inc. is trying to sell assets. Their absence leaves the field to the biggest regional banks such as U.S. Bancorp and PNC.
"Those companies have the luxury of looking at anything," said KBW analyst Christopher McGratty in New York. Acquirers are more likely to strike than they were last year now that the industry has stabilized, he said. "If you feel you have a fair assessment of what your own assets are worth, you feel better about looking at others."
Executives at Minneapolis-based U.S. Bancorp, Pittsburgh-based PNC, BB&T Corp. and People's United Financial Inc. have all made acquisitions and say they're hunting for more. U.S. Bancorp, ranked fifth by deposits among commercial banks, acquired at least 10 banks since the credit crunch started, while PNC is sixth after buying National City Corp.
The catalyst for deals could be announcements in November of minimums for capital and liquidity from international regulators meeting in the Basel Committee on Banking Supervision, according to Richard Bove, analyst at Rochdale Securities in Lutz, Fla. Banks that can't meet the thresholds may become targets, and acquirers will know how much capital deals will require, Bove said.
The price-to-book ratio for the 24 companies in the KBW Bank Index is 0.9, down from an average of 2.1 times from 1993 through 2006, according to Bloomberg data. The ratio, comparing the stock price to the theoretical amount shareholders would own if liabilities were subtracted from assets, is one of Wall Street's main gauges for bank shares. A lower figure could make a bank vulnerable.
Banks trading at large discounts include SunTrust, Regions and Marshall & Ilsley Corp., Bove said. Atlanta-based SunTrust trades at about 0.7 times book value, Regions at 0.6 and Marshall & Ilsley at 0.7, according to Bloomberg data. Regions, Alabama's biggest bank, is based in Birmingham. Marshall & Ilsley is based in Milwaukee.