William F. Hickey, the co-head of investment banking for Sandler O'Neill & Partners L.P., says he is "guardedly optimistic" that bank merger activity will increase in 2012.

Bank stocks have been rising, and the New York investment bank had what he described as a "solid year in 2011." It ranked first among M&A advisors in number of bank deals and participated in a handful of high-profile transactions. It advised Comerica Inc. in its purchase of Sterling Bancshares Inc. in January, and co-advised BankAtlantic Bancorp Inc. in the pending sale of most of its banking assets to BB&T Corp.

Sandler was involved in 28 bank mergers worth $2.3 billion in 2011, compared with 26 deals worth $2.7 billion in 2010, according to SNL Financial. It ranked first in deal volume and eighth in deal value among investment bank advisors; in 2010 it was second in volume and fifth in value.

"There were some exciting deals," Hickey says. "We got our fair share. …We really just stood by our clients and tried to just work through very difficult situations."

The firm helped put together some of the year's more complicated transactions, with volatile stock prices and the anemic economy nixing most straight bank takeovers. Bondholders are suing to stop the BankAtlantic transaction on the grounds that BB&T is obligated to buy BankAtlantic's debt as well as its banking franchise in Fort Lauderdale. Comerica, in turn, endured a sharp sell-off in its shares from investors unhappy about the relatively steep $800 million it paid for Sterling.

Still, Hickey described the Sterling deal as a banner transaction for the firm.

"At the time people saw it as a signal that traditional, strategic M&A could be back," but "the M&A wave did not take old," Hickey says. "It was also a challenging transaction" that "served our client Comerica very well."

He hopes 2012 will be a better year for financial services deals. Sandler added about 15 people to its 90-person deal team last year in asset management, restructuring and other specialties. A 25% rise in bank stocks since late November provides "the first sign of a market that's coming back a little bit," Hickey says.

More mergers of like-size banks with fewer than $10 billion of assets will occur, as institutions with overlapping territories look to drive profits by cutting redundant costs, he predicts. A stock swap between banks of similar sizes can be attractive because the low multiples banks are trading at mean deals with very little goodwill, he says.

Bankers that used to obsess over credit problems are now fretting mostly over falling margins and regulatory costs, he says, and those two pressures are likely to drive mergers.

The surest sign that M&A is back will be when a bank that can be a buyer opts instead to sell, he says.

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