67 WALL STREET, New York - February 6, 2012 - The Wall Street Transcript has just published its Southeast and Midwestern Banks Report offering a timely review of the sector to serious investors and industry executives. This Southeast and Midwestern Banks Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Consolidation in Regional Banking - Growth in U.S. Midwest - Regulatory Outlook Gains Clarity
Companies include: BBCN Bancorp (BBCN); Bank of America (BAC); Cathay (CATY); CenterState Banks (CSFL); Citigroup (C); Comerica (CMA); Fifth Third (FITB); Huntington (HBAN); JP Morgan (JPM); Lakeland Financial (LKFN); Old National Bancorp (ONB); Ozarks (OZRK); SCBT Financial (SCBT); Signature Bank (SBNY); Wells Fargo (WFC); Zions (ZION) and many more.
In the following brief excerpt from the Southeast and Midwestern Banks Report, expert analysts discuss the outlook for the sector and for investors.
Tom Mitchell, Senior Analyst at Miller Tabak + Co., LLC, began in the industry as a Research Analyst with NYSE firm Mabon, Nugent & Co. in 1973, for which he covered consumer and commercial finance companies, credit card companies, and large multi-industry companies encompassing major insurance and financial subsidiaries. In 1990, Mr. Mitchell branched out to set up an independent money management shop, Thomas Mitchell Management Co., Inc., and has managed individual and institutional accounts for the past 16 years. He rejoined the sell side at Miller Tabak in July 2006, with primary coverage responsibility for banks, REITs and other financial stocks.
TWST: What form is the consolidation going to take? Is it going to be regional or are the majors going to be players?
Mr. Mitchell: I think they're out of it. Even the deals that Wells Fargo (WFC) and JP Morgan (JPM) did and Bank of America (BAC) did at the height of the crisis or close to it really were - they were distressed deals. It's something like . . .
TWST: Yes, they're government sponsored.
Mr. Mitchell: Yes, government-sponsored distressed deals. So it's something like a Washington Mutual or a Wachovia. I don't see those kinds of transactions reemerging unless we have another round of really dismal economic activity. So I think that they're out of it. But there are a lot of banks that are under $1 trillion in assets that still could get a lot bigger. We just used $1 trillion in assets as sort of a benchmark. I've been early in calling for this consolidation to happen, so I'm repeating myself over something I felt would have already started happening by now. But that was partly because I thought the economic picture would have improved enough that the industry would be a good deal more confident of its asset values.
TWST: Do banks have the balance sheets to do this?
Mr. Mitchell: Some of them do, and where they don't actually have the balance sheets all by themselves, certainly mergers of equals are reasonable. Remember, it's not just balance sheets. A bank that sells at a premium to its tangible book value, they're already a minority. But if you sell at a healthy premium to tangible book value, and you go on and buy somebody else at close to or a very small premium to tangible book value, it's accretive. So from that point of view, it doesn't really matter so much how terribly strong your balance sheet is if you price the deal right. And you mark the new assets in exactly the same way as you already mark your own assets, so that there is no drift in what standards you're using to say this is what the loans are worth, this is what the nonperforming assets are worth, and so on, as far as you're using the same standard.
So yes, there are pitfalls, but there are opportunities. I think that most banks, many banks, that we have talked to have been waiting for the FDIC to become more active in putting distressed merchandise back into the market. It seems three or four of the banks that we've talked to in different parts of the country have suggested that the FDIC is sort of sitting on merchandise, waiting for things to get better to some extent that otherwise could allow for more consolidation sooner. Of course, nobody wants to go out and pay a premium for somebody else, and then find out that they could have done an FDIC-assisted deal instead. So that is probably to a certain extent affecting the psychology of banks, because every bank that's interested in making acquisitions is interested in not being left out if that opportunity comes up.
We think that there are plenty of banks that sell at decent multiples to their tangible common equity, sell at good premiums such that it would be relatively easy to make acquisitions for stock, of banks that sell at either discounts to tangible book value or fairly close to it. So I think that there is already some tiering in valuations that will favor acquirers, and at the same time there are opportunities for sellers to get premiums to where they're trading. There's enough room. There's enough banks out there that are selling at 75% or 80% of tangible book value, and enough banks trading at 140%. There is a business-transfer arbitrage here. The one with the higher valuation could use stock to buy the other one for a 25% premium to market, which would look pretty good to a lot of bankers right now.
TWST: What names are at the top of your list?
Mr. Mitchell: My list? It depends on what you mean by at the top. The ones that we think are most interesting?
Mr. Mitchell: We particularly - we think that the whole Midwestern area is interesting, partly because, although it has changed, the automobile industry has come back, and is now improving. It's more a directional factor than an absolute factor, but we think that's good for the whole area.
We think that Fifth Third (FITB), Huntington (HBAN), FirstMerit (FMER) - all of those happen to be Ohio-based banks - are very interesting at this time, each for somewhat different reasons. But we think that the Midwest generally is more interesting now than it was a year ago, and a whole lot more interesting than it was in 2007.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Southeast and Midwestern Banks Report is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
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