The recent flurry of bank acquisitions in the region has changed the landscape
dramatically.
Bank of America Corp.’s $47 billion bid for FleetBoston Financial was the apex in banking acquisitions. Experts say this spurred other activity, like Pennsylvania-based Sovereign Bancorp Inc.’s acquisition of New Bedford-based Seacoast Financial Services Corp., which owns Compass Bank.
The whirlwind is expected to slow but not stop, experts say. And many investors eyeing the region are betting on it. Stocks of the five small- to mid-size publicly traded banks in the region have risen on average of 69.1 percent over the last year.
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Bank Rhode Island’s stock has risen from $20.65 to a high in December of $33.49 and Washington Trust Bancorp Inc.’s stock rose from $19.41 to a December high of $29.42. Each company’s stock has since gone down in value by about a $1.
That is still well above the national average. Shares at the more than 500 small- and medium-size banks and thrifts listed in the Nasdaq Bank Index have increased 35 percent over the last year.
“The significant increase in consolidations has accentuated the performance of stocks of banks in this region,” said Jim Ackor, an analyst with RBC Capital Markets based in New York. “Speculation about who will be acquired next is the dominant theme, although not the only theme.”
There are about 14 smaller banks in Massachusetts that may be targets for mid-size institutions like Maine-based Banknorth Group Inc. or Sovereign. Another larger acquirer could be Providence-based Citizens Bank, a subsidiary of the Royal Bank of Scotland.
In Rhode Island, Washington Trust and BankRI are the lone public banks that could be targets for acquisition.
According to Ackor, he expects the trend of middle-size banks seeking out smaller banks to continue in the coming years.
“Although, it’s uncertain who is interested in selling their bank,” he said.
Mark Muth, an analyst with Cleveland-based FTN Midwest Research, said Bank RI is a well-run bank and could be a good target for a company looking to get into the Providence market.
“However, I’m not sure they would be willing to sell,” he said. “There’s something about the general tone when I’ve talked with executives. It’s a hunch more than anything.”
John Warren, chairman and CEO of Washington Trust Bancorp in Westerly, said his company is on the lookout for a good opportunity to acquire more banks, although he wouldn’t comment beyond that. He is also aware of the possibility of Washington Trust being acquired.
“We are publicly traded, so I suppose if someone wanted to break into the Rhode Island market, they would be interested in us,” he said.
Brad Kopp, who runs acquisition activities at Citizens Financial Group, said the company is looking at possible acquisitions that coincide with the general trend of gobbling up small banks. This has been done along the Interstate 495 loop around Boston and continues in states like Pennsylvania.
“There is much more opportunity in the Mid-Atlantic states,” he said.
Citizens has made 22 acquisitions in the past 10 years and is considered a moneymaker for the Royal Bank of Scotland. The CEO of the Royal Bank, Fred Goodwin, called on Citizens to continue making small acquisitions on the East Coast.
Sovereign has also received much attention lately. Reports throughout the banking industry pointed to the possibility that it was preparing to be acquired. One of the possible buyers was Citizens Bank, according to Chris Buonafede, an analyst at Fox-Pitt, Kelton in New York City.
But, he said he doesn’t think Sovereign is going to sell any time soon.
“Sovereign mentioned it would sell at a high premium,” he said. “I think the rumor sent the stock up and they used the value to buy Seacoast. If that’s what happened, that was a shrewd business strategy.”
Sovereign announced the acquisition of the parent company of Compass Bank for $1.1 billion earlier this year.
Ackor sees an additional layer of acquisition activity to watch out for.
“The Bank of America is the 2,000-pound gorilla and clearly cannot be acquired any time soon,” he said. “The question remains is who wants to develop a presence in your region and the rest of New England.”
To find out the answer, one may want to keep an eye on the border.
Foreign institutions are in extremely low-growth markets and their currencies are worth more since the value of the dollar has dropped in the last year and a half. Thus, relatively high-growth markets like southeastern New England are attractive.
“I think we’ll be seeing more foreign acquisitions in the United States,” said Theodore P. Kovaleff, a senior bank and thrift analyst with Sky Capital LLC in New York City.
Of those banks, Kovaleff says Banknorth would be a good fit with Bank of Nova Scotia. The analyst, who covers both companies for Sky Capital, said Banknorth’s acquisition activity has created a large institution that cannot be ignored.
Ackor agrees there are foreigners interested in banks in this neck of the woods.
“There’s a lot of speculation about foreign banks coming into the United States, but they will have to get busy,” he said.
Ackor says larger banks in the United States, like Citigroup and Wachovia, have been acquiring banks at a faster clip. And each of these may be looking to move into markets where they have no presence, including New England.
“Banknorth and Sovereign may be a critical acquisition for a larger bank to compete with the Bank of America,” he said.
