Bank strife likely to spark mergers, asset sales

— -- The unrelenting financial crisis is pounding U.S. commercial banks, transforming the industry landscape and likely leading to a rising wave of bank mergers and fire sales in the coming months.

Also sure to shake up the industry is the Treasury Department's sweeping plan to buy billions of dollars of stock in ailing financial firms. The move will give banks badly needed cash, while aiming to free up credit for consumers and businesses.

"We've never seen such uncertainty over the economy and the banking and brokerage industries," says Michael Flanagan, an independent brokerage analyst at Securities Industry Analytics in Philadelphia.

Federal Deposit Insurance Corp. numbers tell a stark story:

•Fifteen banks, led by Washington Mutual, have failed this year, and the FDIC has added 117 banks to its problem list, including banks facing severe threats to their financial viability.

•Total second-quarter assets of the 8,451 U.S. banks and savings-and-loans fell by $69 billion — the largest quarterly drop since 1991.

•Bank loan charge-offs in the second quarter hit $26 billion — triple the same period in 2007.

Despite the turmoil, a flood of banking mergers and asset sales is anticipated soon, as the value of U.S. bank stocks has plummeted in recent months, say analysts such as Bart Narter at Celent, a financial services consulting firm.

Already, foreign banks are hunting for good deals. Potential acquirers include Toronto-Dominion Bank in Toronto, HSBC in London, Royal Bank of Scotland in Edinburgh and Banco Santander in Madrid. All have bought U.S. banks in recent years, and Banco Santander reportedly was an avid suitor of Wachovia. "The U.S. banking industry is up for sale, and it's a Kmart blue-light special," says analyst Robert Patten at Morgan Keegan. "A lot of stronger banks are looking very closely at a lot of weaker banks."