4 Banks Ready to Sell Out
Prospective bank buyers are outweighing sellers, signaling that after a big lull in U.S. bank mergers and acquisitions last year, the market may revive in 2012.
In an update to its list of potential bank buyers and sellers, bank research firm KBW now counts 53 potential bank acquirers, far outweighing the 22 potential sellers that it identified and an additional 13 banks that could either look for a deal or a sale in 2012.
While the update provides four new banks to consider as consolidation targets, it also signals a possible uptick in bank consolidation on the heels of a significant $1.5 billion Monday deal.
In a March 12 report, KBW analyst Christopher McGratty highlights four new banks that could potentially look at a sale, including Alliance Financial, First Defiance Financial, OmniAmerican Bancorp, and Texas Capital Bancshares.
In addition, McGratty removed BankUnited from his buyers list and added it to a list of 13 potential bank buyers who could become sellers.
New additions also include Cardinal Financial and Heritage Commerce.
Alliance Financial currently trades at a price to 2013 earnings per share valuation of 12.3x, while it is valued at 1.4x its tangible book value.
KBW currently holds out a $30 a share price target and a “market perform” rating for the Syracuse, N.Y.-based lender. Alliance Financial also has a tangible common equity of 7.7 percent relative to its total asset.
First Defiance Financial
Another new sale candidate, First Defiance Financial , currently trades at a price to 2013 earnings per share valuation of just 8.7x and a stock price that reflects a discount to the bank’s tangible book value.
KBW analysts rate First Defiance Financial a “outperform” rating on the bank’s 0.9x tangible book valuation and its tangible common equity to total asset ratio of 8.7 percent. They give shares of the Defiance, Ohio-based bank a $19 price target, a near 20 percent premium to current trading prices.
New KBW prospective bank seller OmniAmerican Bancorp may look to sell itself at a premium valuation that reflects the Baltimore-based lenders brightening prospects after a 2010 initial public offering.
Since its initial public offering, OmniAmerican shares have surged over 60 percent, significantly outperforming bank peers.
Even at a current valuation of 24.7x expected 2013 earnings per share and a 1x price to tangible book value, KBW analysts give shares an “outperform” rating and a price target of $23, an over 20 percent premium to current trading prices.
Texas Capital Bancshares
At a market cap of $1.3 billion, Texas Capital Bancshares is KBW’s largest-cap new addition to its potential sellers list.
The Dallas-based bank currently trades at 13.8x KBW’s forecast 2013 earnings per share and a price to tangible book value of 2.2x, warranting a “market perform” rating and a $33 a share price target from KBW that’s a discount to current trading prices over $34.
Overall KBW analyst McGratty added 12 potential buyers to his bank M&A watch list, four potential sellers and just three potential buyers who could become sellers.
Meanwhile, McGratty removed four possible bank buyers and two potential sellers. It’s a signal that, after a slow period in industry consolidation, a shortage of sellers might pull buyers into the market.
A 2012 rally in the bank sector and a surplus of banks owned by private equity investors may be an added headwind for deals in the coming year, to recover from the slowest year in U.S. bank mergers in three decades, according to Thomson Reuters data.
The Financial Select Sector SPDR is up more than 14 percent year-to-date, more than doubling the 6 percent return of the Dow Jones Industrial Average in 2012.
If a Monday acquisition of Pacific Capital Bancorp by UnionBanCal for $1.5 billion is any indication of 2012 deal activity, banks held by private-equity owners may increasingly make it to the selling block.
In the California bank consolidation, UnionBanCal is buying Pacific Capital Bancorp for $46 a share, or a 60 percent premium to share prices prior to the deal announcement. For Pacific Capital’s 76 percent shareholder, the Ford Financial Fund, a private bank investing firm run by Texas billionaire Gerald Ford, the deal is a large windfall on a $500 million investment.
The acquisition also was a benefit to the U.S. Treasury Department, which held roughly 11 percent of Pacific Capital’s outstanding shares after making a $181 million preferred share investment in Pacific Capital as part of its $700 billion Troubled Asset Relief Program bank bailout in 2008.
Other significant banks owned by private-equity firms include First Republic Bank, BankUnited, Boston Private Financial Holdings, Central Pacific Financial, Webster Financial, and National Penn Bancshares, among 23 in total notes McGratty in a Jan. 22 report.
While UnionBanCal — owned by Japanese banking conglomerate Mitsubishi UFJ Financial Group after a $3.6 billion acquisition in 2008 — has cut the first in a possible flurry of private equity-backed bank strategic acquisitions, the deal also highlights a M&A rationale.
UnionBanCal said that the premium-priced acquisition would be accretive to earnings as a result of synergies and hundreds of millions in deferred tax assets that came with Pacific Capital.
Because Pacific Capital struggled to turn profits since the crisis, a merger allows the acquirer to make use of tax benefits to those losses.
“Unique to this transaction, Union Bank is reversing Pacific Capital’s $248mm DTA valuation adjustment and is recording a $20mm net write-up of the 2010 credit mark (after tax). As a result, the as-reported [price to tangible book value] multiple paid of 2.25x declines to 1.6x after making these adjustments,” writes McGratty.
In 2009, Pacific Capital lost $421 million as its nonperforming assets rose to $467.3 million. The bank’s losses have since turned to profits, after it reported net income of over $70 million for 2011.
Pacific Capital shares rose over 56 percent to $45.03 in Monday trading. Prior to the deal, the company's shares were off roughly 7 percent in the last 12 months.
For UnionBanCal, the move is also a quick way for it to grow its wealth management and banking presence in Santa Barbara and the central coast of California. Overall, UnionBanCal will add Pacific Capital’s 47 branches to its 400-plus branches spread across California, Washington, Oregon, Texas, and New York.
Pacific Capital has $5.9 billion in assets, while UnionBanCal has $89.7 billion in assets, according to filings as of Dec. 31.
In 2010, bank investor Gerald Ford invested $500 million in Pacific Capital, with the agreement to convert the government’s preferred investment into common stock.
For Ford, Monday’s sale of Pacific Capital may have been the bank investment coup that he was looking for in the aftermath of the credit crunch.
After the crisis hit, Ford had been looking for a distressed bank to buy, hiring , Blackstone Group, and to bid on First Republic Bank, then a unit of Bank of America.
Instead, First Republic was sold to private-equity firms General Atlantic and Colony Capital, and is now among the banks that McGratty notes is a top performing private-equity investment.
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