In the wake of the latest big bank merger deal on Monday, one equity analyst left a concise message for U.S. Bancorp chairman John Grundhofer: "What next, kemosabe?"
U.S. Bancorp, the Minneapolis banking company that many believed would join with Wells Fargo & Co. to make a dramatic expansion in the California market, was left on the sidelines when Wells signed a $34 billion deal with Norwest Corp.
The deal puts pressure on Mr. Grundhofer to come up with another strategy, many analysts said. And some were predicting Mr. Grundhofer would respond quickly by making a deal with Washington Mutual Inc., the big Seattle thrift, or $tk billion-asset Unionbancal Corp., San Francisco, which is mostly owned by Bank of Tokyo-Mitsubishi Ltd.
Such deals would have seemed unlikely before Monday's blockbuster, but have "got to be considered at this point," said Frank Barkocy, banking analyst at Josephthal & Co. "You have to suspect U.S. Bancorp had a backup plan if they didn't get Wells."
Others dismissed speculation about Washington Mutual or Unionbancal, saying a series of smaller deals is more likely. And some analysts said U.S. Bancorp would look for deals in other parts of the country.
Right now, U.S. Bancorp has only a modest representation in the northern part of the state, but "very much wants to be in California," said R. Jay Tejera, of Dain Bosworth. "I believe that still holds true."
Mr. Grundhofer declined to be interviewed for this article. But in the past, he has telegraphed his aspirations for California expansion quite bluntly. Earlier this year he told a meeting of California community bank presidents to look out for challenges from institutions like his.
Market watchers mentioned Washington Mutual as a likely partner for U.S. Bancorp because of its looming presence in California. They also cited Unionbancal.
But both enterprises would pose challenges. When it completes its purchase of H.F. Ahmanson & Co., Washington Mutual will have twice the assets of U.S. Bancorp and significant overlap that could raise antitrust issues with U.S. Bancorp's Pacific Northwest operations.
Unionbancal's Japanese owners would probably demand cash, a deviation from the stock-swap structure most bank deals are taking.
Investment bankers in California are hoping that U.S. Bancorp will begin looking for small and midsize banks in the state, instead of looking for one large acquisition.
The approach has merit, analysts said. U.S. Bancorp "could choose small snacks instead of taking one big meal," Mr. Tejera said. But that would be a switch from the past couple of years, when U.S. Bancorp declined to participate in auctions for community banks, Mr. Tejera said.
Some market watchers said Mr. Grundhofer could choose another part of the country, altogether. The banking company is ranked as one of the best run in the industry. And that gives its shares a premium that would make purchases easier, analysts said.
"They could head to the Midwest," said Nancy Bush, banking analyst at Ryan Beck & Co. Mr. Tejera said Firstar Corp., KeyCorp, or Mercantile in St. Louis could be prospects for a takeover by U.S. Bancorp.
The company may opt to step back from bank acquisitions for a while and grow internal operations - and earnings, analysts said. They see the possible purchase of a money management company, insurance firm, or processing operation to boost net income.
U.S. Bancorp will strike, but only when the time is right, one longtime observer said.
The company is a "financially disciplined acquirer with a steady eye on return on investment," said Sandra J. Flannigan, banking analyst at Merrill Lynch Global Securities.