Analysts: Regions could be merger target - Tampa Bay Business Journal:

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billion required by the U.S. government through a stock banking experts believethe Ala., company could eyeball a merger as a part of its capitall plan. North Carolina’s and , whichg will likely be hungry for acquisitions once the financial marketxturn around, are two potentia l bidders that are considerintg Regions to expand their franchises in the Southeast, accordinfg to analysts. “While Regions has optionas to get the capital it we do not think a mergefr with another institution can be completeluyruled out,” the company said in a clieny note released this week.
“Itf it came down to Regions decidintg whether or not to have the governmentg as a partner or merginf withanother company, we believe a merger would maximize shareholder value.” Regions — which was orderedr to raise $2.5 billion after failing the government’zs “stress test” — announced plans Wednesdayg to raise half of the fundz by selling $1 billion shares in a common stocl offering and another $250 million worthg of new convertible preferred shares.
Since the bank’sw shares are trading just above $5 per share, raisingg the total amount would have been a muchhardeer task, especially since the shares will have to be deeplg discounted to lure investors, said Howe Barnes Hoefer Arnett banking analyst Jeff Davis. “Whenn it was a $25 the answer would be no [it wouldn’r be difficult], but to raise $2 billion at $5, that’ds going to be tough for Regions,” he said.
“Thi is not about what’s best for This is more about survivao and meeting the capital call the government has Regions spokesman Tim Deighton stressed that the companty would raise the money without convertingUncle Sam’ds preferred shares into common He also said the bank’s brokerage arm, Morgan Keegan & Co. and its retail-brancgh network are not up for However, if options becoms limited, the bank would not have a choice but to sell some of its mostvaluabld assets, Davis said. “If they can’gt make the $2.5 billion capital then Morgan Keegan might have to be on the he said.
However, if the bank’e earnings improve within the next few the federal government might ease up and allowa the bank to raise a lower Davis said. On the other hand, Regions’ hefty exposurr to the commercial real estated sector is a causefor concern, which is why the extrwa capital is not a bad idea, said Michael a banking analyst . “I’m a little bit more cautious aboug the Southeast because I thinkj the commercial real estate fallouy is going to be more severe here than other he said. “I am more concernedc about (Regions’) portfolio than a SunTrust.
” In the firsty quarter, Regions delinquent and non-performing commercial real estat e loans ballooned 34 percentto $945 compared to $703 million in the fourtjh quarter ended Dec. 31, accordinvg to the The stress test, officially knowj as the Supervisory CapitalAssessmenrt Program, analyzed fourth quarterf data at the nation’s top 19 banks to test theif ability to withstand economic pressurez amid skyrocketing unemployment rates and loan defaults. Basec on the government’s worst-case scenario, Regionz could encounter $9.2 billion in loan lossew next year.