Bank mergers to slow, says KBW report

NEW YORK (Reuters) - Bank mergers in the United States are likely to slow, due partly to higher financing costs and the widespread credit crisis, according to a report by investment bank Keefe, Bruyette & Woods.

Nonetheless, KBW is maintaining a list of 21 banks it considers likely takeover targets.

KBW said it has successfully identified 16 out of 43 potential targets over the past three years, five of which have been bought this year.

And on Monday, a firm run by Gerald J. Ford, a billionaire investor and former thrift executive, said he had acquired a stake in one of the banks on KBW's list, Downey Financial Corp DSL.N.

Ford's Hilltop Holdings Inc. said in a regulatory filing it had accumulated a 6.8 percent stake in Downey Financial and planned talks with the southern California savings and loan about long-term strategies, including a possible merger or acquisition.

KBW said U.S. bank deal activity had been robust in 2007, with 55 deals year to date, outpacing the 54 deals for all of 2006.

However, KBW said meaningful M&A bank activity will only resume "once confidence can be restored to suggest that the existing and potential problems have been well reserved for."

In the meantime, KBW said growing earnings and regulatory pressures amid a smaller pool of buyers "should lead to more rational pricing expectations."

The following is KBW's list of likely takeover targets:

AmericanWest Bancorp (AWBC.O), Astoria Financial Corp (AF.N), Bancorp Rhode Island Inc (BARI.O), Banner Corp (BANR.O), CoBiz Financial Inc (COBZ.O), Downey, First Community Bancorp FCBP.O, Heritage Commerce Corp (HTBK.O), MetroCorp Bankshares Inc (MCBI.O), NewAlliance Bancshares Inc (NAL.N), Prosperity Bancshares Inc (PRSP.O), Provident Bankshares Corp (PBKS.O), Seacoast Banking Corp of Florida (SBCF.O), Sovereign Bancorp SOV.N, Sterling Bancorp (STL.N), SunTrust Banks Inc (STI.N), TCF Financial Corp (TCB.N), Texas Capital Bancshares Inc (TCBI.O), TIB Financial Corp (TIBB.O), Umpqua Holdings Corp (UMPQ.O) and Valley National Bancorp (VLY.N).

(Reporting by Mark McSherry, editing by Gerald E. McCormick)