Sunday, June 8, 2003

What's the buzz?

Bank merger mania predicted

Picture Fifth Third Bancorp gobbling up one of Tennessee's largest banks and an industry pioneer at opening grocery-store branches.

Or imagine Bank One Corp. going after Cleveland's KeyCorp, giving the Chicago-based banking giant a franchise that has had trouble growing revenues.

Banking analysts at Blaylock & Partners L.P. in New York - led by Michael Plodwick - have compiled their 2003 list of more than 250 mergers that could be plausible by year's end. Analysts expect the banking industry to resume its rapid consolidation that slowed down in the past few years as the economy tanked.

Plodwick, a top banking analyst who last compiled the "Merger Modeler" in 1999, again developed some intriguing scenarios that included major banks with big Tristate operations.

He predicts that bank M&A activity will gain steam the next six to 12 months for many reasons, among them:

• Lack of big revenue growth for many banks.

• A need to slice the competition, with more than 7,800 U.S. banks.

• Greater demand for more traditional consumer banking operations, making some existing franchises more attractive to potential suitors.

"After a long drought, we believe the banking sector is poised for sustained uptick in M&A activity," Plodwick says. "More and more bank executives have been publicly discussing M&A recently, and we believe some key M&A-related questions might be answered in the coming quarters."

Among his picks as likely buyers: Cincinnati's Fifth Third, National City, Bank of America, Citigroup, JP Morgan, Wachovia and Wells Fargo. Banks he views that likely are to be acquired or merged into another bank: Comerica, FleetBoston Financial, KeyCorp and PNC Financial Services Group.

Plodwick's picks have proved to be interesting: His 1999 report included a scenario that Fifth Third would buy Michigan's Old Kent Financial Corp. In a stock deal worth about $5 billion, Fifth Third in fact two years later bought Old Kent, making it a more dominant Midwestern bank.

But this time around, Fifth Third likely won't be a quick acquirer until it resolves some issues with banking regulators tied to internal accounting problems in its treasury operations.

"We see them as a buyer, but we don't think that they will emerge as one until they're comfortable this Fed thing is resolved," Plodwick says.

Jeff McKinney

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