Not many suitors left standing for U.S. banks

By Dan Wilchins and Jennifer Ablan - Analysis

NEW YORK (Reuters) - The U.S. Federal Reserve is arranging shotgun weddings for failing financial institutions, but policy makers might find themselves running out of eligible suitors.

The Fed encouraged JPMorgan Chase & Co to take over Bear Stearns Cos Inc, which had experienced a run on the bank. The deal came two months after Bank of America Corp agreed to buy Countrywide Financial Corp, the largest mortgage lender in the U.S. The Fed also encouraged that deal.

With these acquisitions, top U.S. banks are either embroiled in big takeovers or wrestling with credit problems with their own.

International banks have shown little interest in U.S. acquisitions and sovereign wealth funds have already been burned.

"There may be some potential buyers left, but the list is looking pretty thin," said Adam Compton, co-head of global financial stock research at RCM Global Investors.

In the end, the U.S. taxpayer is likely to be on the hook for some extra capital for banks and brokers, analysts said.

The dearth of buyers is likely why Lehman Brothers Holdings Inc's shares fell so much on Monday, ending the day down 19 percent. Some investors fear Lehman will face liquidity problems similar to Bear Stearns'.

Lehman Chief Executive Dick Fuld said in an email sent to reporters that with the Federal Reserve allowing investment banks to borrow directly from the central bank on a secured basis, liquidity concerns are "off the table."

But investors were rattled.

National City Corp, a bank that was reportedly looking to sell itself, fell 43 percent amid concern that there were few buyers, analysts said.

The U.S. government may be increasingly involved in rescuing banks, but foreign governments are likely to be more reluctant to put more money in U.S. financial institutions, after having already lost big on their investments so far.

Since late November, Citigroup has raised more than $15 billion of capital from sovereign wealth funds. But the company's shares have dropped more than a third since the beginning of the year.

Qatar's prime minister, who heads the country's $60 billion sovereign wealth fund, told Reuters last month he would rather invest in European over U.S. lenders because U.S. bank stocks were likely to fall further on subprime-mortgage writedowns.

Bear Stearns' fire sale does not help.

"This type of an episode should send those entities running for the hills at the moment," said Tad Rivelle, chief investment officer at Metropolitan West Asset Management in Los Angeles.