Don't be surprised to see some of the Buffalo Niagara region's biggest banks line up for some of the federal government's bank bailout money.
Top executives from both M&T Bank and First Niagara Financial Group made favorable statements last week about the Treasury Department's plan to invest at least $250 billion in banks as part of its plan to prop up the financial industry.
And given the relative financial strength of the local banks, they'd tap into the federal money to become rescuers, not rescuees.
They'd use the money they get from allowing the federal government to buy stakes in their companies to strengthen their own finances with the expectation that regulators will demand that banks have more capital on hand.
Once that's done, it wouldn't be surprising to see them use the money to buy other banks or pieces of weaker institutions being sold to stay afloat and meet the heightened capital requirements.
Executives from M&T and First Niagara say they haven't decided whether to pursue the federal money -- they have until Nov. 14 to apply -- but they're certainly intrigued.
"We're still evaluating that, but I don't have anything negative to say ,10l,7p2 about it," Rene Jones, M&T's chief financial officer, told analysts last week during a conference call. "I think it's a great program."
John Koelmel, First Niagara's president and CEO, went even further. He says the $108 million the Lockport-based bank raised within the last month gives it enough capital to clear the tougher capital standards regulators may impose on the banking industry.
So if it gets bailout money, the funds could allow the bank to take "an invigorated look" at possible mergers. "I don't want to imply that we'll overreach," Koelmel says. "But this does give us an opportunity to play at a higher level."
With the nation's banking system in turmoil, healthy regional banks like M&T and First Niagara will be under pressure to be part of a wave of consolidation that many analysts think will sweep the banking industry as stronger institutions, bolstered by the federal investments, gobble up weaker ones.
We got our first example of that on Friday, when PNC Financial Services Group, strengthened by a $7.7 billion capital infusion through the second phase of the $250 billion rescue program, agreed to buy struggling National City Corp. for about $5.2 billion in stock.
Koelmel isn't convinced the deals will evolve that quickly for banks like First Niagara, whose upstate market isn't collapsing under the weight of a crumbling housing market.
"The market up here has been pretty steady for the smaller guys," Koelmel says. "I don't see the current economy tipping anyone over."
Instead, Koelmel thinks some of the best acquisition opportunities for banks like First Niagara could come from bigger banks deciding to sell off their branches in slow-growing upstate as a way of raising capital.
Yet the money from the federal rescue program, which already has pledged $125 billion to nine big banks, could let those institutions -- and the smaller ones that get money through the second round -- take more time before they sell.
The banks that accept the federal investments will issue to the government preferred stock that pays annual interest of 5 percent. "The low-cost preferred stock available from the government is a prudent option for most eligible banks," says Morningstar analyst Jim Sinegal.
The government also would get warrants to buy some of the company's common stock, which gives the government the chance to profit if the shares rise.
"We just want to make sure we fully vet the terms and conditions," Koelmel says. "We're learning on the fly here."