Wednesday's move by Maine-based Peoples Heritage Financial Group to acquire Banknorth Group of Vermont highlights the persistent urge toward consolidation among northeastern regional banks.

"People are going to continue to feel pressure to do deals," said Laurie H. Hunsicker, a banking industry analyst with Friedman, Billings, Ramsey of Arlington, Va. "Everything is coming to the fore."

People's Heritage, based in Portland, would pay $780 million, or 2.35 times the seller's book value, for Banknorth, prospectively forming a $17 billion-asset company with a banking presence through most of New England and upstate New York. Banknorth is headquartered in Burlington, Vt.

Observers say the northeastern banking market is rife with similar merger possibilities involving institutions in the $10 billion-asset range.

Among the favorite picks of analysts are UST Corp. of Boston, whose shares were unchanged at $24.0625 on Wednesday; Webster Financial Corp. of Waterbury, Conn., which was unchanged at $29.0625; and People's Bank of Bridgeport, Conn., which slipped 0.42%, to $29.875.

Analysts also do not rule out Chittenden Corp. of Burlington, Vt., whose shares were up 1.49%, to $$29.875; and Charter One Financial Inc. of Cleveland, which has a significant presence in New York State. Shares of of Charter One fell 0.88%, to $28.125.

Another midsize banking company in the region, Citizens Financial Group of Rhode Island, is owned by Royal Bank of Scotland and does not trade publicly.

"With shares of many of these banks not performing all that well, there is increased pressure to do something to get stock prices moving in the right direction," said analyst James Ackor of Tucker Cleary in Boston.

Many of the northeastern regional banking companies have been expanding their presence throughout the area through purchases of community banks. Analysts say these banks then have no option but to merge, because the market is so crowded.

"They are running out of room and running into each other," said veteran northeastern analyst Don Kauth of BT Alex. Brown.

Some may wonder at the appeal of the Northeast, which is often seen as economically mature. The market, while not considered a growth engine, "does have a very wealthy segment of the domestic U.S. population," Mr. Ackor said.

For banks in the area, mergers are a balance sheet management tool. They can deploy excess capital on mergers to keep their return on equity high, Ms. Hunsicker said.

Out-of-region buyers may also be interested in the Northeast, particularly if they pick up divestitures from the Fleet Financial Group- BankBoston transaction and then want to expand further.

Indeed, if the Fleet branches are scattered among several institutions, these banks will probably like to continue their expansion strategy, analysts said.

"There are dozens of combinations, depending on who is successful in getting the Fleet branches," Mr. Ackor said. Fleet will be making available $13 billion of assets, which could spur more deals among regional and community banks.

"You have to believe the nationwide banks will not want to ignore the Northeast," Mr. Kauth said.

More broadly, bank stocks posted another losing day, on fears that the Federal Reserve will opt to raise interest rates at its next meeting on June 29, or later this summer.

The Standard & Poor's bank index shed 0.46%, the Dow Jones industrial average 0.17%, and the Nasdaq bank index 0.46%. The S&P 500 rose 0.55%

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.