Regional banks that are highly acquisitive during down cycles could be the best performers in the sector as it looks to recover from recent problems based on historical data, a Sandler, O'Neill and Partners analyst wrote in a research note Friday.
Coming out of a downturn in the banking sector in the early 1990s, analyst Mark Fitzgibbon said acquisitive banks performed far better than their competitors during the five years after the bottom of the market.
Shares of the 11 banks that acquired other firms during the downturn in the early 1990s gained, on average, more than tripled during the three years after the bottom of the market in October 1990, compared with 165 percent gains in the SNL Bank and Thrift Index, Fitzgibbon wrote in the note.
During the five-year period from October 1990 to October 1995, the acquisitive banks nearly rose fourfold compared with 253 percent for the broader sector.
The acquisitive banks likely outperformed competitors because they had excess capital and smaller credit problems, executives were more opportunistic, they were able to purchase franchises cheaply and repair them and they were proactive, Fitzgibbon wrote in the note.
Fitzgibbon cautioned that the current downturn in the market due to rising defaults among loans, tightening credit standards and falling home prices and sales still might worsen before it gets better.
Fitzgibbon identified 21 banks that could be in for a price surge coming out of the current downturn if they grow their franchises through acquisitions, including Wells Fargo & Co., U.S. Bancorp, Regional Financial Corp. and SunTrust banks Inc.
Shares of all four, and most other banks, fell Friday afternoon as broader markets declined.
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