Capital One, M&T deals signal thaw in bank mergers

By Paritosh Bansal

NEW YORK (Reuters) - This fall, the only way to sell a bank was to get the government involved. That may not be so anymore.

Capital One Financial Corp (COF.N), a credit card issuer and bank, agreed to buy privately held Chevy Chase Bank for $520 million earlier this month.

The deal was followed by M&T Bank Corp (MTB.N) taking over Provident Bankshares Corp (PBKS.O) in an all-stock transaction valued at around $400 million, and private equity firm MatlinPatterson Global Advisers LLC agreeing to invest $250 million in Flagstar Bancorp Inc (FBC.N).

These transactions, although small, are significant because for the last few months the only bank deals that could get done involved some sort of government participation. Would-be buyers were too worried about potential losses lurking on a seller's books.

Two rule changes have helped deal activity, according to mergers experts. Accounting rulemakers said in late September that banks could value assets based on what they would be worth in normal markets, rather than the fire-sale prices they might fetch in turbulent times.

At around the same time, the U.S. Internal Revenue Service said losses from writing down bad loans from an acquisition can generate immediate tax benefits, rather than benefits that must be recorded over many years.

But another big spur to deals was the sense that asset values are stabilizing, experts said.

"A lot of the losses have been taken and recognized already," said James Murray, head of investment bank Houlihan Lokey's financial institutions group. "There is a degree of confidence that some institutions are healthy enough to be acquired."