Get Ready For A Wave Of Bank Mergers

Banks are facing unused lending capacity, idle cash, and depressed market values, leaving the industry ripe for takeovers. But the four biggest may not be able to join in

Banks have a problem. Loans outstanding have dropped 10 percent since October 2008, the sharpest contraction in more than 35 years, according to Goldman Sachs (GS). That's left them with unused lending capacity, idle cash, and depressed market values. As analysts at Keefe, Bruyette & Woods (KBW), Rochdale Securities, and CreditSights see it, those conditions make the industry ripe for a wave of takeovers that could rival the buying binge of 2001 to 2007.

This time, the four biggest banks won't be doing any significant buying. Bank of America (BAC), JPMorgan Chase, (JPM) and Wells Fargo (WFC) each controls something in the neighborhood of 10 percent of U.S. deposits, the most permitted by regulators when considering takeovers, and Citigroup (C) is trying to sell assets. The absence of those banks may keep prices down in any merger wave. And it leaves the field to regional banks such as U.S. Bancorp (USB) and PNC Financial Services Group (PNC). "Those companies have the luxury of looking at anything," says KBW analyst Christopher McGratty.

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