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By Anurag Kotoky
BANGALORE, April 23 (Reuters) - A well-capitalized bank like Valley National Bancorp (VLY.N) could be a strategic fit for People's United Financial Inc (PBCT.O), which, with its $2.5 billion of excess cash, is actively seeking to snap up a bank.
"They (People's United) want a high-quality commercial bank at a bargain price and there are not a whole lot of banks in that category now," Anthony Polini, an analyst at Raymond James, told Reuters.
People's United spokesman Brent DiGiorgio declined to comment on Valley but said the company was actively seeking acquisitions of like-minded banks in the corridor from Maine to Washington, D.C.
Bridgeport, Connecticut-based People's United, which is looking to double or triple its assets over the next two to five years, has been one of the better capitalized banks in the country.
"Banks in America would love to have a balance sheet as strong as People's," Janney Montgomery Scott analyst Rick Weiss said in a note to clients.
At the end of first quarter, People's United had a tangible common equity ratio -- a measure of capital strength closely watched by investors these days -- of over 19 percent, higher than most of the banks in the nation.
People's United, which was added to the S&P 500 Index .SPX last November, is looking for a relatively high-quality commercial bank at a distressed price and Valley National could be the one, Polini said.
Wayne, New Jersey-based Valley National said it had not received any acquisition offers but would be "receptive" if any came in.
"If the offer is adequate, anyone would own the company," Valley's Chief Executive Gerald Lipkin told Reuters in an interview.
Analysts said it is unlikely that Valley would agree to a takeover, given the weakness in its stock price, but the bank tops the list of potential targets for People's United.
Shares of Valley National, currently valued at about $1.8 billion, have lost 47 percent of their value since hitting a 52-week high of $24.75 last September.
"If I were Valley, I would not be selling now. You need to sell it at a 100 percent premium to get back to where you were. And usually you do not see premiums go higher than 20 percent," Polini said.
However, he doesn't expect a deal any time soon.
None of these banks are in danger at the moment, despite their beaten-down stock prices, and unless their fundamentals deteriorate further, they are unlikely to contemplate a sale, Kelley said.
"Patience is a virtue," he said. "They (People's United) are in the driver's seat. The more they wait, the more they will see opportunities."
"Signature Bank, with where they are trading today, could be more ready to consider a sale, because they are not trading at these deep lows like other banks," Polini said.
Friedman, Billings and Ramsey's James Abbott said though Valley is considered People's top target, there are several possible deals with similar profiles that carry much stronger internal rates of return and are less dilutive to tangible common equity.
"We recently updated our merger model for People's, showing strong internal rates of return for Wilmington, Webster and Fulton," Abbott wrote in a note to clients. DEPOSIT ACQUSITION LIKELY?
Apart from a complete buyout of a bank, People's United could also look to acquire deposits of bigger banks, similar to the deal between First Niagara Financial Group Inc FNFG.O and PNC Financial Services Group Inc (PNC.N), analyst Kelley said.
PNC Financial agreed to sell some of its branches to First Niagara as part of an agreement with regulators related to its acquisition of Cleveland-based National City Corp. [ID:nBNG441458]
The seventh-largest U.S. bank said it would sell 57 of its branches and $4.2 billion in deposits to First Niagara for a deposit premium of 1.3 percent, or $54 million.
"Something like that was incredibly well perceived, and it would be a model for People's to get interested in similar deals," Kelley said.
Banco Santander SA (SAN.MC), after its acquisition of Sovereign Bancorp Inc, could look to sell deposits and People's could make a good deal from it at a low premium, Kelley said.
Royal Bank of Scotland (RBS.L) could also be interested in divesting deposits in the area, he added.
However, analyst Polini said unlike other commercial banks, People's is not generally interested in acquiring just deposits and building relationships from there.
"People's is actually very interested in acquiring loans. They want to get commercial banks as opposed to retail deposits," Polini said. (Editing by Ratul Ray Chaudhuri)