Some segments of the financial services industry are fertile ground for private-equity investment, including card processors and property and casualty insurers, according to a report by KBW Inc.'s Keefe, Bruyette & Woods Inc.

Targets singled out include Marsh & McLennan Cos. Inc. and Moody's Corp.

Private equity "will be selective in its involvement in the financials," and its interest in commercial banks will probably be limited by regulatory restrictions on ownership, KBW's research team predicted in a report issued Tuesday.

Bear Stearns Cos. shook the banking and private-equity worlds May 17 when it led a group of private-equity investors in pledging $415 million as part of a $630 million recapitalization of Doral Financial Corp. of San Juan, Puerto Rico.

The move came after J.C. Flowers & Co.'s $25 billion deal in April to take Sallie Mae private. Also in April, the Milwaukee banking company Marshall & Ilsley Corp. said it planned to spin off its Metavante Corp. unit, and Warburg Pincus LLC announced it had agreed to buy a 25% stake in the technology and processing business when it goes public.

"Private-equity firms will continue to play a role in the depository space, although activity will likely remain muted relative to that in the nonbank financial services sector," KBW analyst Robert Hughes wrote.

"The broader themes that we see affecting the banking space include disaggregation (such as the sponsored spinoff of Metavante) and distressed situations (such as the announced Doral Financial transaction)."

Other financial services sectors considered unlikely targets of private equity include brokerages, asset managers, and specialty finance, KBW said.

The processing and business information services sector is moderately likely to attract private-equity involvement, according to KBW.

KBW views the card processing sector and property and casualty sector as the most attractive to private equity, and called Marsh & McLennan the likeliest target.

The company "has a proud history, excellent reputation, and well-known brand, which have all been tarnished in recent years," KBW's Cliff Gallant wrote.

"Under new leadership, perhaps these strengths could be revived." He said Marsh & McLennan could be more valuable if its subsidiaries became independent operating companies.

The analysts named several other potential targets including Nelnet Inc. of Lincoln, Neb.

The student loan company "would be a particularly attractive target for a private-equity firm if the acquisition occurred in partnership with a bank," the KBW report said.

Other candidates mentioned by KBW include the ratings service Moody's and Fidelity National Information Services Inc., a processing business in Jacksonville, Fla.

A spokeswoman for Marsh & McLennan said the company had no comment on the report.

Representatives of Moody's, Nelnet, and Fidelity did not respond to requests for comment.

Melissa A. Roberts, a third author of the KBW report, wrote that the private-equity boom could slow if the economy falters or if there is a significant increase in interest rates because "easy credit has provided fuel for the fire" in private equity.

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