DEALTALK-FirstMerit, Prosperity scout for FDIC-assisted deals

BANGALORE, Sept 9 (Reuters) - Regional U.S. banks, such as FirstMerit Corp (FMER.O) and Prosperity Bancshares Inc PRSP.O, are gearing up to cash in on the rising bank failures as they look to expand their footprint.

On one hand, many banks have fallen victim to the credit crisis, while on the other, the healthier ones are seizing the opportunity to snap up zombie banks at knocked-down prices.

"Where you really make the money... is when the industry goes through periods of stress -- you pick up the deposits and assets of failed banks for essentially nothing," said Jeff Davis, an analyst at FTN Equity Capital Markets.

"And you only get one shot at opportunities like this," he said.

In July, FirstMerit's Chief Executive Paul Greig said on a conference call that the company could buy a bank with up to $5 billion in assets with assistance from the Federal Deposit Insurance Corp (FDIC).

Analyst Davis said FirstMerit may be interested in troubled Cleveland-based AmTrust Bank, which has about $4 billion in deposits.

Greig's banking experience is mainly in Chicago, so the company may also look for deals there, said John Rodis, research vice president at Howe Barnes Hoefrer & Arnett.

While FirstMerit may be eyeing banks in the Western states, Prosperity is hunting mainly in Texas.

Last year, Prosperity took over $3.7 billion of deposits and 46 branches of Franklin Bank Corp in the state.

"The Franklin deal's been a home run for them. I think it's been better than we or they expected," Stephens Inc analyst Matt Olney said.

"We are still going to be on the prowl, we are going to be looking for potential FDIC acquisitions," Prosperity's Chief Executive David Zalman told Reuters.

Zalman, who lost his bid for the banking unit of Guaranty Financial Group Inc GFGF.PK, said the company might either go in for one or two big FDIC-assisted deals or five to six smaller acquisitions. [ID:nBNG210317]

IberiaBank Corp (IBKC.O), which last month bought Alabama-based CapitalSouth Bank, may also be looking for another FDIC-assisted deal, analyst Olney said.

Analysts said bigger banks like JPMorgan Chase & Co (JPM.N), U.S. Bancorp (USB.N), Comerica Inc (CMA.N) and Toronto Dominion Bank (TD.TO) may also be looking at buying distressed assets of failed banks.

NO-LOSS SITUATION

Analysts expect banking markets such as California, Georgia and Ohio to see a rise in FDIC-assisted deals as home values went down the most in these states.

So far in 2009, more than 80 banks have failed, including three large ones -- BankUnited Financial Corp BKUNQ.PK in May, and Colonial BancGroup Inc CBCG.PK and Guaranty Financial in August.

Analysts expect at least a couple of hundred more banks to fail this year.

Apart from the availability of failed banks and deep discounts, it's help from the FDIC that is driving such deals.

These transactions include a loss-sharing agreement between the acquirer and the FDIC, lowering the credit risk.

"And if it's just buying the deposits of the sale banks, then generally we've seen the premiums rather attractive for the acquirer," BMO Capital Markets analyst Lana Chan said.

"It's somewhat of a no-loss situation (for the acquirers)," Howe Barnes Hoefrer's Rodis said. (Reporting by Supantha Mukherjee and Ramya Dilip in Bangalore; Editing by Unnikrishnan Nair)