The R&R could be ending for bank M&A.

The dormant market for bank mergers and acquisitions may be poised to rebound once a wave of healthier financial companies repay their Troubled Asset Relief Program funding this month, analysts and bankers said.

"We're not going to see a torrent yet, but I suspect we'll start to see a pickup [of merger activity] with the non-Tarp banks as we get into 2010," said Jeff Davis, a senior vice president and the research director at Howe Barnes Hoefer & Arnett Inc. "Paying off the Tarp frees these banks up to do private transactions."

Outside of federally assisted deals for failed banks, no major bank acquisition has been made since PNC Financial Services Group Inc. closed its $5.6 billion purchase of National City Corp. on Dec. 31.

That deal cast a pall over the bank M&A market as PNC was criticized by lawmakers for funding the purchase out of its $7.6 billion of Tarp money. The backlash made other relatively healthy banks wary of doing deals.

Of course, the mass deterioration of credit quality has also hampered activity.

Still, David Hendler, a senior analyst at CreditSights Inc., said the Tarp program "effectively halted" bank mergers. He, too, expects them to pick up as banks repay Tarp — something expected to begin this month — and take advantage of their relative financial heft by going shopping.

In a report last month, Hendler mentioned JPMorgan Chase & Co., U.S. Bancorp, BB&T Corp, Morgan Stanley and Goldman Sachs as the U.S. banking companies best positioned to do deals, though the latter two have both played down their interest in buying a retail bank.

Hendler said all of them have the capital to absorb acquisition targets weighed down by money-losing assets. All but Morgan Stanley passed the government stress test, and it has already raised $2.2 billion of capital, exceeding the $1.8 billion required by the stress test. These companies are expected to be among the first to repay Tarp, having successfully raised capital, a stipulation for repayment.

JPMorgan, U.S. Bancorp, Goldman and BB&T declined to comment. Morgan Stanley spokesman Mark Lake said that, were the company to do a retail bank deal, it would probably be a small transaction that would bolster its wealth management business.

The purchase of a sizable bank in the Southeast would make strategic sense for JPMorgan Chase and U.S. Bancorp, Hendler said. However, JPM's acquisition prospects are complicated by restrictions on deposit concentration.

Other banks will be prowling for deals, Hendler said, as the economy emerges from recession and banks look to drive up their earnings per share.

Rick Maples, the head of the financial institutions group and co-head of investment banking at Stifel Nicolaus & Co., agreed that the industry is due to consolidate. Though banks may be motivated to do deals for strategic and financial reasons, he said, a purchase creates bragging rights.

"It's a sign of strength if they can make an acquisition after they pay off the Tarp dollars," he said. By "doing so th[ey] will show the market that they are" survivors.

Maples said some other economic factors, such as figuring out how to value troubled assets, must fall into place before the M&A market rebounds.

Thomas Chen, a managing director and the group head for financial institutions at Piper Jaffray & Co., agreed.

He does not see the M&A market other than assisted deals gathering steam until mid-2010. Though mergers may remain tepid until then, he does expect more companies to shed unwanted units like specialty finance and mortgage divisions to cut risks and raise capital.

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