When are the super-regional U.S. banks going to show some game?

With the July 4th weekend upon us, it’s time to think about patriotic duty. Are a group of banks in good health becoming too aloof from the work of cleaning up bank failures?

By Heidi N. Moore, contributor

For the past two years, many in the banking sector have been making eyes at BB&T (BBT), PNC Financial Services Group (PNC) and U.S. Bancorp (USB), who could be big acquirers if they wanted to be. Will they ever step up to the plate?

Nothing personal, but what are BB&T, PNC, and U.S. Bancorp doing with all their money and time? They’re in pretty good shape, with decent amounts of cash on hand and growing loan portfolios.

These four super-regional banks are, in many ways, the last great hope of the U.S. banking system. The big banks are absorbed in their own problems, ranging from Citigroup (C) to Bank of America Merrill Lynch (BAC) to Goldman Sachs (GS). (In fact, Bank of America, JP Morgan (JPM) and Wells Fargo (WFC) are now too big and too far beyond the U.S. cap on deposits to acquire many banks.) The small banks are plagued with an epidemic of failures. But these few, these proud, these mid-size — why haven’t we heard much from them?

We started thinking about this subject anew after we read Keefe Bruyette & Wood’s interesting bank takeover list, released this week after a long hiatus. In a measure of how unsettled the banking world has become, KBW bank analyst Christopher McGratty compiled two lists you would expect: potential buyers and potential sellers. Then he has a third list: potential buyers who could become sellers. Everybody in the pool.

McGratty believes that banks will start merging on their own again, driven by several trends including a fragmented market — too many banks — aging management, and the need to cut expenses and boost earnings. He believes it may take two or more years for the banking sector to recover, and many banks may not want to limp through it alone.

McGratty puts PNC, BB&T and U.S. Bancorp at the top of his potential buyers list. There is no question that those banks are at the top of any M&A wish list.

Unfortunately, they’ve also been at the top of the FDIC’s wish list for years — as potential buyers for failed banks — and they mostly haven’t delivered. (U.S. Bancorp did pick up a few, but there were smaller banks that picked up six or eight). Instead the FDIC has been forced to sell small failing banks to other small banks. The “small is beautiful” strategy is purely out of necessity: The FDIC can’t afford to absorb all the assets of those failed banks, and the big banks aren’t going to buy them. The FDIC maintains an email list of about 600 banks that it uses to alert buyers to opportunities in bank failures. Few of the large regional banks have taken the FDIC up on its offers.

Part of the reason is that many of the failed banks are too small to make a difference to a big acquirer. KBW estimates there are 451 remaining banks whose metrics make them look ripe for failures, and their total assets are only $239 billion. With an average of $500 million in assets, it may not be worth the trouble to the super-regionals to buy them.

Still, it’s not as if the FDIC couldn’t use the help. Bank failures have metastasized to 83 institutions this year — 250 since the crisis began, and the total $600 billion in assets they held is much bigger than the $400 billion held by all the banks that failed between 1990 and 1993. The FDIC’s fund is stretched.
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Until PNC, BB&T and U.S. Bancorp decide to show up, here are more of McGratty’s predictions.

Potential Buyers

Large Cap: U.S. Bancorp, PNC Financial, BB&T
Northeast and Mid-Atlantic: First Niagra Financial, M&T Bank, Northwest Bancshares, OceansFirst Financial, People’s United Financial
Southeast and Southwest: CenterState Banks, First Community Bancshares, First Horizon National Corp., Home BancShares, Iberiabank, Prosperity Bancshares, Renasant, SCBT Financial, Trustmark, United Community Banks
West: Center Financial, CVB Financial, Heritage Financial, Nara Bancorp, TriCo Bancshares, Umpqua and Washington Federal

Potential Sellers

Abington Bancorp, Boston Private Financial, Cardinal Financial, Encore Bancshares, Susquehanna Bancshares, Western Alliance Bancorporation, Wilmington Trust

Potential Buyers Who Could Become Sellers