KBW CEO: Weak dollar could aid U.S. bank takeovers

By Jonathan Stempel

NEW YORK (Reuters) - Merger activity among U.S. banks will likely remain slow at least until the middle of 2008 but may get a boost from foreign acquirers able to benefit from the weak U.S. dollar, the chief of investment bank Keefe, Bruyette & Woods' parent said on Monday.

John Duffy, who runs KBW Inc (KBW.N: Quote, Profile, Research, Stock Buzz) and took it public last November, said worries about a slowing U.S. economy and rising consumer and business credit losses are holding back potential suitors. The summer's credit crunch has caused merger discussions to lessen "dramatically," he said.

"People are now concerned more about an economic slowdown and what the implications for credit and the credit quality of the target bank's balance sheet," Duffy said at the Reuters Finance Summit in New York. "Buyers have stepped away."

For non-U.S. buyers, the situation is different. The euro hovers near $1.45, compared with near parity with the greenback five years ago, while the Canadian dollar this year broke through parity for the first time since 1976.

Some European banks including HSBC Holdings Plc (HSBA.L: Quote, Profile, Research, Stock Buzz) and UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) have, like their U.S. counterparts, been distracted by consumer credit losses. Royal Bank of Scotland Group PLC (RBS.L: Quote, Profile, Research, Stock Buzz), whose Citizens Financial unit is one of the largest U.S. banking franchises, has been focused on leading a buyout group for Dutch bank ABN AMRO Holding NV AAH.AS.

But Duffy said a weak dollar makes U.S. bank valuations look better to foreign buyers.

Earlier this year, Spain's BBVA Bilbao Vizcaya Argentaria SA (BBVA.MC: Quote, Profile, Research, Stock Buzz) agreed to pay more than $9 billion for Compass Bancshares Inc. of Birmingham, Alabama.

KBW itself advised Canada's Toronto-Dominion Bank (TD.TO: Quote, Profile, Research, Stock Buzz) on its pending $8.5 billion purchase of New Jersey's Commerce Bancorp Inc CBH.N. That transaction valued the latter at 2.9 times book value, according to Lehman Brothers Inc. analysts.  Continued...