U.S. banks look for deals as profits improve

CHARLOTTE, N.C./NEW YORK Thu Apr 21, 2011 10:14pm BST

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CHARLOTTE, N.C./NEW YORK (Reuters) - U.S. regional banks including BB&T Corp (BBT.N) and Capital One Financial Corp <COF.N are increasingly looking to buy rivals as a way to boost revenue now that they have cleared up the worst of their credit problems.

Bank executives talked to analysts about acquisitions on Thursday on conference calls to discuss quarterly earnings, and in many cases it was the most direct admission that the banks were seriously considering doing deals.

"If I had to guess, I would guess we would do some deals this year," BB&T Chief Executive Officer Kelly King said during the company's first-quarter earnings call.

He added that discussions about merger deals are at an all-time high.

More than four years after the U.S. housing crisis created an avalanche of loan losses, regional banks are getting their books in order. The next step is to figure out how to boost revenue when loan demand seems tepid.

"There are banks that are looking for earnings growth with excess capital, and this is a way to put that capital to use," said Keefe, Bruyette & Woods Inc analyst Jefferson Harralson.

Analysts have said banks may do more deals as investors become more impatient about a lack of revenue growth.

BB&T shares, for example, closed down 2.3 percent at $25.98 on the New York Stock Exchange after the company beat earnings estimates, but showed lower-than-expected revenue growth.

The acquisition talk ran the gamut from conservative to aggressive on Thursday.

Capital One Financial, which has been an aggressive buyer in the past, said it would consider buying banks, lending companies or asset portfolios.

"We certainly look at banks. We have looked at lending companies and asset portfolios, partnerships," Capital One Chief Executive Officer Richard Fairbank said.

Atlanta-based SunTrust Banks Inc (STI.N) -- which steered clear of M&A discussions recently -- said it would consider acquisitions.

PROFITS, LONG-TERM QUESTIONS

Many regional banks reported better-than-expected quarterly earnings on Thursday. But some have curbed their appetite for debt and banks have tightened lending standards since the financial crisis, putting a damper on the key source of revenue for regional banks.

Even if corporate loan demand seems to be growing, it is not growing fast enough to offset the decline in consumer borrowing at many banks.

Winston-Salem, North Carolina-based BB&T's first-quarter profit rose 21 percent as the Southeastern regional bank set aside less money to cover loan losses.

Loans and revenue were stagnant or worse, though BB&T said delinquent loans reached their lowest level in three years, while it charged off the fewest number of loans in two years.

REPAYING BAILOUT MONEY

Others reported similar results.

Regional lender PNC Financial Services Group Inc (PNC.N) reported a 24 percent increase in quarterly profit. Its shares closed up 1.4 percent at $61.62 on the New York Stock Exchange.

Credit card lender Capital One's first-quarter profit rose 60 percent. Like other consumer lenders, the McLean, Virginia-based bank has seen its losses on bad loans largely recover since the financial crisis. Shares closed up 5.4 percent at $53.26.

Two banks that repaid their government bailout aid received from the TARP program at the height of the 2008 financial crisis, Cincinnati-based Fifth Third Bancorp (FITB.O) and SunTrust Banks Inc (STI.N), reversed year-earlier losses.

Fifth Third shares closed down 1.2 percent at $13.16. SunTrust shares closed down 1.9 percent at $27.10.

(Reporting by Joe Rauch in Charlotte, N.C. and Clare Baldwin in New York)

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