Wednesday, August 07, 2002

Industry Notes: Banking


Bank, thrift mergers drop in 2nd quarter

By Jeff McKinney, jmckinney@enquirer.com
The Cincinnati Enquirer

        The number of bank and thrift mergers continued to fall in the second quarter but could pick up steam during the second half of the year.

        There were 40 bank deals with $8.6 billion in total assets sold during April, May and June, compared with 56 deals and $108.5 billion in assets sold during last year's second quarter, according to SNL Financial, a Charlottesville, Va.-based research firm. The absence of huge deals is the culprit for the big difference in volume for assets sold during the year-ago period.

        A sluggish economy, weak stock market and greater emphasis on improving credit quality, in general, have slowed merger-and-acquisition activity among banks the past two years.

        But two deals, involving banks with large Tristate operations, could be a sign that more deals are coming in the next few months as financial institutions try to grow their franchises and expand into new areas.

        Two weeks ago, Cincinnati's Fifth Third Bancorp said it would invest $240 million in stock to acquire Franklin Financial Corp. The deal will allow Fifth Third Bank's parent to expand in Nashville and pick up a $775 million-asset bank.

        A week later, Minneapolis-based U.S. Bancorp said it would pay $429 million in cash to buy the branch network of Bay View Capital Corp.'s Northern California branch network, allowing it to expand its reach in the San Francisco area. U.S. Bancorp was acquired a year ago for about $22 billion in stock by Firstar Corp., the successor to Cincinnati's Star Banc Corp.

        Robert B. Albertson, chief strategist of Sandler O'Neill & Partners, told industry trade publication American Banker that Fifth Third and U.S. Bancorp are among large regional banks leading a trend among banks to expand their franchises by doing “fill in” deals. He also said he thinks that not only will continue, but will accelerate.

Banks face weak profits near year's end

        Weak loan demand could hurt profits of regional and community banks during the second half of this year, industry experts say.

        With demands for consumer loans showing signs of weakness and slow demand for business loans persisting, at least two banking analysts think that those factor could hamper bank profitability if those factors remain.

        The reason: A slowdown in growth could reduce those banks' net interest margin, the difference between what banks pay on loans and make on deposits. “If loan demand does not come back, it will be a problem,” Ronald Peterson of Sandler O'Neill Partners in Chicago told the industry trade publication American Banker.

        But analysts are hoping that banks could offset the slow loan growth by finding ways to boost fee income and cut credit costs.

Low mortgages keep homebuyers happy

        Consumers continue to get a break as mortgage rates keep tumbling, reducing borrowing costs for those looking to buy a home.

        The average rate on a 30-year, fixed-rate mortgage locally was 6.43 percent as of Tuesday, down from 7.15 percent a year ago, according to a weekly survey of Tristate lenders by the Cincinnati Area Board of Realtors.

        The lower rate means a $48.20 savings on the monthly payment on a $100,000 loan, increasing housing affordability for many consumers looking to buy their first homes or homeowners looking to move up from their first homes to more expensive ones.

        Mortgage rates have been dropping steadily in Greater Cincinnati for about the past two years. The lower rates have fueled record home sales and increased home lending for local banks, thrifts and mortgage companies.

       

        Contact Jeff McKinney at 768-8499; fax 564-699; e-mail jmckinney@enquirer.com.

       

       



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