| NEW YORK, July 22
NEW YORK, July 22 JPMorgan Chase & Co (JPM.N)
is one of a few U.S. banks strong enough to buy others, and
some analysts suspect Chief Executive Jamie Dimon is on the
prowl for deals but holding back for the right moment to pull
Credit crunches usually spur strong banks to buy weak ones,
to pick up assets on the cheap. JPMorgan would seem well
positioned to acquire now.
There are obstacles to buying now, including accounting
rules and the ever-weakening balance sheets of many targets,
which gives potential buyers an incentive to wait. But many
analysts think JPMorgan is at least looking at deals now.
JPMorgan declined to comment.
"I am pretty certain they are shopping," said Michael Nix,
a principal at Greenwood Capital Associates, which has $750
million under management and owns JPMorgan shares. "The fact
they haven't done anything yet suggests to me that they are not
so sure we've seen the bottom."
On a recent conference call, Deutsche Bank analyst Mike
Mayo asked Dimon, "You've been waiting your whole life for this
environment ... so what is the impediment to you pursuing a
merger right now in the retail banking side?"
"Nothing is impeding us," Dimon said. "But it's not just up
Dimon has said in the past that JPMorgan would look to
expand in Florida and California, and experts see several banks
that could fit into JPMorgan's ambitions.
The list includes banks such as Washington Mutual Inc
(WM.N) and Wachovia Corp WB.N that have a presence in the
U.S. Southeast and the West Coast, experts said.
Other, somewhat smaller institutions like SunTrust Banks
Inc (STI.N) and BB&T Corp (BBT.N) with a presence in the
Southeast can help Dimon realize his Florida dreams, they
"If you've got the capital and the access to capital, why
not do it when no one else can or when no one else wants it?"
asked Cassandra Toroian, chief investment officer at Bell Rock
Capital, which owns JPMorgan shares.
Washington Mutual, Wachovia, and SunTrust declined to
comment. BB&T spokesman Bob Denham said, "We are committed as
ever to remaining independent."
Toroian said Washington Mutual -- the largest U.S. savings
and loan, now weighed down by mortgage losses -- would probably
be at "the top of the list for JPMorgan."
JPMorgan offered to buy WaMu earlier this year, a person
briefed on the matter previously told Reuters, but its $7
billion bid was spurned and the thrift instead opted for an
infusion of that size from private equity firm TPG Capital LP
[TPG.UL] and other investors.
JPMorgan, which in March agreed to buy Bear Stearns Cos
with the encouragement of the U.S. government, may also have
U.S. regulators counting on it to step up for a rescue again.
"I am sure the government is also talking to JPMorgan about
potential purchases of problem banks," said Chip MacDonald, a
partner at law firm Jones Day.
Even if JPMorgan was scouting for deals, a transaction is
likely to take time.
"I have the feeling that JPMorgan is talking to lots of
people," said MacDonald, who declined to discuss potential
targets. "But I would be surprised if anything was imminent."
Under U.S. accounting rules, a company that acquires
another must record the value of the target's assets and
liabilities at their market value at the time of purchase.
For many banks in distress, marking assets and liabilities
to market would leave them with a negative net worth, and
buying such a bank cuts into the acquirer's capital. Most
would-be buyers these days do not have loads of capital to
Boards may also be reluctant to sell when stock prices are
depressed. The KBW Bank Index .BKX, which includes 24 major
bank stocks, is down roughly 44 percent since the beginning of
July last year.
Those drops are good for potential buyers, said William
Bates, a partner at law firm King & Spalding.
"It's some opportunity," Bates said. The difficulty is in
getting completely comfortable with a bank's assets, and being
sure write-downs won't overwhelm the benefits of any
acquisition, he added.
(Editing by Gary Hill)