Several Midwest banking companies that have posted lackluster earnings in recent quarters could get bought out this year, according to an analyst report.
Kevin K. Reevey of BankAtlantic Bancorp's Ryan Beck & Co. said in a banking outlook published Thursday that FirstMerit Corp. of Akron and Huntington Bancshares Inc. of Columbus, Ohio, could get snapped up.
In an interview Monday, Mr. Reevey pegged KeyCorp and National City Corp., both of Cleveland, and Royal Bank of Scotland Group PLC as possible buyers of FirstMerit or Huntington.
The $3.4 billion-asset FirstMerit said in reporting fourth-quarter earnings that it was hurt by poor credit quality resulting from the change in consumer bankruptcy law in October.
The full extent of FirstMerit's credit quality woes came to light last week when it restated its fourth-quarter and full-year earnings to reflect a $3.5 million after-tax addition to loan-loss reserves to cover a problem commercial credit it learned about in January.
It said earnings fell to $27.7 million for the quarter, instead of $31.2 million as reported on Jan. 19, and to $130.5 million instead of $134 million for the year.
FirstMerit does not have many options to increase its share price and could get $30 per share in a sale, Mr. Reevey said. Its shares closed at $23.91 Friday.
The $33 billion-asset Huntington had credit quality issues of its own in the fourth quarter. Corporate governance and accounting has been another issue; the Office of Controller of the Currency lifted a formal written agreement against Huntington in October, but it is still under an enforcement agreement with the Federal Reserve.
Huntington is "in some attractive markets" and could get $29 a share in a sale, Mr. Reevey said. On Friday its shares closed at $23.10.
Huntington's regulatory problems have held up its deal to buy Unizan Financial Corp. of Canton, Ohio, which was announced in January 2004 and is now expected to close in March.
When that deal is done, Unizan shareholders might pressure Huntington to sell, Mr. Reevey said.
"The only reason Unizan waited two years for this deal to close is for the double dip," he said, referring to the double premium shareholders would stand to get from holding stock in two companies that were bought out.
Andrew Marquardt of Swiss Reinsurance's Fox-Pitt, Kelton Inc. said Monday that FirstMerit and Huntington regularly appear on lists of possible sellers but that he does not think either one is ready to be acquired.
First Merit has made some missteps, particularly in credit quality last quarter, but "people may be reading too much into it in terms of some reflection of their underwriting standards and why the stock is underperforming," Mr. Marquardt said.
Thomas E. Hoaglin, Huntington's chairman, president, and chief executive, has been managing expectations carefully, Mr. Marquardt said.
Mr. Reevey's report also named a pair of Wisconsin companies as possible sellers in 2006: Associated Banc-Corp of Green Bay and Bank Mutual Corp. of Milwaukee.
FirstMerit did not return phone calls before press time. All other companies mentioned in Mr. Reevey's note declined to comment Monday. Shares of FirstMerit rose 1.4%. Huntington fell 1.1%.
