A pair of sell-side analysts is recommending certain regional banking names as they expect M&A activity to continue in the sector after last week's merger between Bank of America and FleetBoston Financial. "The merger signals larger banks are really looking to grow their retail footprint. Bank One Corp., Citigroup, Wachovia Corp. and possibly Wells Fargo may be looking to add," says Mark Girolamo, analyst at Barclays Capital.
Candidates to be scooped up include KeyCorp, Sovereign Bank and PNC Financial, Girolamo says. He argues that their credit fundamentals should pick up with improvements in the local economies they serve--making them attractive to bondholders even if they are not acquired.
Other names that could tighten 30-100 basis points if they are acquired are Greater Bay Bancorp, Webster Financial, Bank of the North and Susquehanna Bancshares, according to Joe Labriola, U.S. head of credit research at BNP Paribas. The main obstacle he sees to buying regional banking paper is liquidity.