Don't hold your breath waiting for the Treasury Department's sweeping injections of capital to create a surge of acquisitions in the banking industry.

It is widely believed that one goal behind the government's capital infusion program was to encourage strong banks to acquire weaker ones, but some bankers and analysts say the scope of the plan to date may give a reprieve to struggling institutions previously viewed as likely sellers.

South Financial Group Inc. of Greenville, S.C., burdened by exposure to Florida real estate, got preliminary approval from the Treasury this month to receive $347 million under the program.

H. Lynn Harton, South Financial's interim chief executive officer, said the Treasury's approval improves his $13.7 billion-asset company's prospects for a "viable" future.

"It's a judgmental process choosing the strongest banks. We have a great team, we've made changes … and we know our challenges," Mr. Harton said in an interview last week. Still, he cautioned, "While certainly we believe we have enough capital … the market right now is hard to predict."

Kevin Kabat, the CEO of Fifth Third Bancorp, said that strengthening balance sheets and capital levels "certainly gives folks some breathing room in terms of positioning themselves. Relative to some of the acquisition activity expected, it may change and push the timetable out a little bit."

As of Friday the Treasury Department had approved investing about $217 billion in more than 80 financial institutions.

"What really surprises me is that just about everyone seems to be getting the government funds," said Gary Townsend, the CEO of Hill-Townsend Capital LLC.

Analysts said they initially questioned whether the credit problems that resulted in quarterly losses could exclude large regionals such as Fifth Third, of Cincinnati, and KeyCorp of Cleveland, along with smaller companies like South Financial and United Community Banks Inc. in Blairsville, Ga. They also pointed to rising delinquencies at Regions Financial Corp. in Birmingham, Ala., and relatively low levels of risk-based capital at Valley National Bancorp in Wayne, N.J., as possible hurdles to winning final approval for Treasury funds. All these companies have at least been given preliminary approval.

Mr. Townsend said the government's decision to give PNC Financial Services Group Inc. extra capital to help it buy National City Corp., the Cleveland company hobbled by bad mortgages, rather than to Nat City itself, indicated that more banks would get turned down.

Richard Davis, the CEO of the $243.6 billion-asset U.S. Bancorp of Minneapolis, said recently that the widespread capital approvals had put "nearly every bank" that his company could buy in "a holding pattern."

Mr. Davis made the remarks at a Merrill Lynch & Co. conference on Nov. 12.

Since then Citigroup Inc. has become a notable exception. The $2.1 trillion-asset company was one of the original recipients of funds under the Troubled Asset Relief Program, securing $25 billion. However, last week questions about its direction put enormous pressure on its stock price and prompted speculation that Citi would be forced to sell parts of the company or all of it. (See related story.)

Citi's market cap has eroded so much that some analysts say U.S. Bancorp is now capable of buying the company. Both companies declined to comment.

But mergers among the nation's smaller regional banks may take longer to happen because of the breadth of government funding, according to Christopher Nichols, the president and CEO of Banc Investment Group LLC, a unit of Pacific Coast Bankers' Bancshares of San Francisco. "It's still too early in the cycle to have meaningful activity," he said. "None of the regional banks that we see are really in a position to come off of the sidelines."

Some recipients of Tarp money take pains to say they never needed a government cash infusion.

Gerald H. Lipkin, Valley National's chairman, president, and CEO, called the approval "a show of confidence that gave us a strong endorsement because obviously we didn't need the money." He said in an interview that his $14.3 billion-asset company accepted the funds because "the banking industry is facing a black hole of uncertainty and Tarp money is an insurance policy to assure our clients and shareholders that we are positioned to survive and get through this period."

Fifth Third and the $144.3 billion-asset Regions declined to comment on analyst questions about their participation in the program. Calls to the $101.3 billion-asset Key and the $8.1 billion-asset United Community were not returned.

Some bankers are speaking out. Kelly King, the chief operating officer at BB&T Corp. of Winston-Salem, N.C., expressed "disappointment" that some weaker competitors received Tarp funds, according to a report from Friedman, Billings, Ramsey Group Inc. analysts who met with executives of the $137 billion-asset BB&T last week. Mr. King said it is "inevitable" that some of those that were funded will consider selling by next spring, the report said. Mr. King is to become BB&T's CEO in January,

Fifth Third's Mr. Kabat said he believes there will "still be smaller types of opportunities" similar to Fifth Third's Oct. 31 purchase of $254 million of deposits of the $287 million-asset Freedom Bank in Bradenton, Fla., which had closed. "So we're always going to be keeping our ears to the ground."

Analysts said a handful of sizable banks and thrifts remaining have yet to receive word on their applications for Tarp capital. These include the $26.3 billion-asset Colonial BancGroup Inc. in Montgomery, Ala., and the $6.2 billion-asset BankAtlantic Bancorp in Fort Lauderdale, Fla., the analysts said. Colonial and BankAtlantic said they had nothing new to report. BankUnited Financial Corp. in Coral Gables, Fla., and Downey Financial Corp. in Newport Beach, Calif., have been quiet about their possible participation in the program.

The $12.8 billion-asset Downey, however, said in a Nov. 10 regulatory filing that it could be seized at any time by regulators. Calls to the $14.3 billion-asset BankUnited and Downey were not returned.

Mr. King told the FBR analysts that BB&T would remain a disciplined acquirer with a distaste for buying "troubled institutions as a whole" without some form of governmental backstop.

Mr. Kabat said "you have to be mindful" of acquisitions. "Acquirers have to be really sensitive about their capital applications as well." Like BB&T, Fifth Third can be patient until the right target becomes available, recognizing that "from the Treasury Department's perspective, this is an investment," Mr. Kabat said.

"It's not free money, and they will expect a return like all investors."

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