People's United Financial Inc. remains interested in using excess capital for acquisitions — perhaps even in the Southeast, as analysts have speculated — according to the $20 billion-asset Bridgeport, Conn., company's chief executive.
"The capital isn't burning a hole in our pockets, so we don't need to do it tomorrow," Philip R. Sherringham, the CEO, said in an interview last week. If a transaction "makes sense," he might be open to looking in the Southeast.
Some analysts suggest People's could use $2.5 billion remaining from its second-step conversion last year to enter faster-growing markets in the Southeast. Mr. Sherringham did not rule out the idea, but he said the fact that some banking companies in that part of the country are hampered by souring real estate development loans could make it hard to find companies that fit its return goal.
"In today's environment, asset values seem to be moving very quickly, and generally in the wrong direction, which makes due diligence even more important than in the past," he said. For strategic purposes, an ideal transaction would generate an annual return of 20%, Mr. Sherringham said.
"Also, we wouldn't make an acquisition just to say we're present in a state — meaningful market share is important."
Anthony Polini, an analyst at Raymond James & Associates, said "bottom fishing" makes sense in the Southeast, which is less consolidated than markets further north.
Problems with asset quality may be deeper there, but "the further we get into a recession, the easier it is to put a price on assets, good or bad," he said.
People's United could wait another six to 12 months before buying, to give it enough time to do due diligence, Mr. Polini said, and it could get a government-assisted transaction if it waited long enough.
Analysts said People's United could target the $26.3 billion-asset Colonial Bancgroup Inc. in Montgomery, Ala., or the $34.3 billion-asset Synovus Financial Group in Columbus, Ga. Both companies have significant exposure to souring residential construction loans.
Greg Hudgison, a spokesman for Synovus, said it does not discuss acquisition speculation. Colonial did not return phone calls
But People's United, which operates more than 300 branches Connecticut, Vermont, New Hampshire, Massachusetts, Maine, and New York, remains primarily interested in deals in its current markets, so it can build market share, Mr. Sherringham said.
People's United has the top deposit share in its home base of Fairfield County, and its January acquisition of the $6 billion-asset Chittenden Corp. of Burlington gave it the top share in Vermont.
Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP, said it was "wise" for People's United to be disciplined in shopping for acquisitions, though it should consider buying in the very near future, since its excess capital is "just sitting in Treasury [securities], generating low returns."
The capital is also crimping the asset-sensitive company's net interest margin, he said. People's United's third-quarter margin expanded 15 basis points from the second quarter but shrank 30 basis points from a year earlier, to 3.71%.
"I'm convinced they will buy something over the next few months," so the company can be more profitable next year, Mr. Fitzgibbon said.
Despite the company's assertion that it wants to increase its share in its current markets, Mr. Fitzgibbon said he expects People's United to enter new markets "where they would have higher growth potential."
Collyn Bement Gilbert, an analyst at Stifel Nicolaus & Co. Inc., agreed that People's United does not have to make a deal in the immediate future.
"The market is rewarding capital and discipline, and I don't see the margin compression as a real issue," Ms. Gilbert said. "That said, there may be an acquisition out there for them that in the short term would have a higher level of risk but in the longer term be far greater than they would have imagined."