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5 Banks Worth Buying Out

Matt Koppenheffer
January 27, 2011

Many banks in the U.S. are no longer limping along. In fact, there are several in a great position to be consolidators in the banking industry and puff up their vaults by snapping up smaller banks.

There has already been some of this going on. M&T Bank was able to pick up Wilmington Trust for a song after that bank was crippled under its rapidly expanding pool of bad loans. It remains to be seen how that will work out for M&T -- it either made the deal of the century by getting the Wilmington name and clientele for a cheap price or the price will end up justifying itself as Wilmington's loans continue souring.

Meanwhile, Comerica has managed to craft a deal that shareholders are definitely not fond of. Last week, Comerica expanded its Texas footprint by buying Sterling Bancshares. Unlike Wilmington, Sterling wasn't a bank on the ropes -- its loan losses haven't been particularly high and it has a strong capital base. But for that, Comerica paid a premium price of 2.3 times tangible book value, and since the deal was announced, investors have knocked Comerica's stock down roughly 9%.

So what should banks like PNC Financial (NYSE: PNC  ) and BB&T (NYSE: BBT  ) that could still be in a position to make acquisitions be looking for? Generally speaking, I think the M&T approach -- getting a great price for a bank that needs some TLC -- will probably trump the Comerica approach -- making a higher-quality purchase but paying a premium price for it. However, I think there's room in the middle to pay a reasonable price for a bank that's in pretty good (if not very good) shape.

Here are a few of potential buyout targets I came up with:


Nonperforming Loans / Total Assets

Allowance for Credit Losses / Nonperforming Loans

Average Total Equity / Average Assets

Price-to-Tangible Book Value

Viewpoint Financial (Nasdaq: VPFG  )