NEW YORK (Reuters) - Turmoil in the credit markets is likely to prompt one or more Wall Street investment banks to seek partners, possibly with foreign buyers, in coming months, one influential bank stock analyst said on Monday.
Charles Peabody, partner in Portales Partners and former financial analyst at Merrill Lynch & Co MER.N , UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) and other institutions, told the Reuters Finance Summit in New York that Merrill and Bear Stearns Co Inc BSC.N are the most likely candidates to seek a partner.
And cash-rich foreign buyers, such as government-backed investment groups like those in China, Dubai or Singapore, would likely be possible buyers, said Peabody. But a stronger U.S. acquirer, such as JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz), could also make a move, said Peabody.
"We will see at least one forced marriage, maybe two," said Peabody. "Bear and Merrill are the two most likely to be in the soup, or at the top of the (wedding) cake with other partners."
Among the buyers are "entities with government backing," he added. "But don't rule out Jamie Dimon," referring to the chief executive of JPMorgan Chase, or other money-center banks looking to bolster their investment banking capabilities.
Other potential buyers could include Wachovia Corp WB.N, which was recently approached by ousted Merrill CEO Stan O'Neal for a potential deal, and Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), which recently suffered a big third-quarter downturn in its investment banking division.
"I don't rule out JPMorgan emerging in position of strength, and I do know that Wachovia and Bank of America would like to have a major (investment) banking presence," said Peabody.
To some extent, the possibility of a merger depends on how long the credit travails will affect the banking sector, said Peabody. Not only have major investment and commercial banks been forced to take millions and sometimes billions of dollars in fixed income write-downs, they are also suffering from slowing corporate investment banking services.
"When I look at the leverage of these investment banks," said Peabody, "unless I have underestimated their risk management, I don't see how they are going to survive a prolonged down cycle."
Any merger activity among megabanks would be part of a continuing trend over the last few decades, pushed by stakeholder demands to become better capitalized, offer more services and become more global in reach.
Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz), for instance, is the combination of mergers that absorbed First Boston and Donaldson, Lufkin & Jenrette, while JPMorgan combined with BankOne, Chase Manhattan, Hambrecht & Quist and others. UBS absorbed Warburg, Dillon Read and PaineWebber, while Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz) took over Bankers Trust, Alex. Brown and others in recent years.
(For summit blog: summitnotebook.reuters.com/)
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