Where There's a Will, There's Bank M&A

Special situations.

That's the catch-all phrase in M&A for takeovers of problem companies.

It is an apt description for BB&T Corp.'s surprise deal to buy most of BankAtlantic Bancorp Inc. of Fort Lauderdale, Fla., as well as other likely deals on the horizon for banks with billions of dollars of assets, experts say.

Normal mergers among big, healthy banks may not come back for a while. BB&T's $301 million deal for only the clean parts of BankAtlantic show how creative deals involving down-on-their-luck small regionals and midsize banks have better prospects.

In keeping with other frustrated dealmakers that are re-writing the bank M&A playbook, BB&T essentially cherry-picked from BankAtlantic's loans, deposits and branches.

That is not entirely unusual. Carving a bank out from its holding company has been done before. What is especially novel in this deal is that publicly traded BankAtlantic has agreed to keep its riskiest assets — $624 million in foreclosed property, reserves, overdue and criticized loans that BB&T does not want.

Kicking bad assets from a bank unit to the holding company is a no-no under bank accounting regulations. BankAtlantic is getting around that by letting go of its status as a bank holding company certified by the Federal Reserve Board. The holding company will change its name and focus on business lending as it winds down those problem loans left out of the deal.

That aspect of the transaction makes the structure of this one unique and less likely others will imitate it, experts says.

When executives sell their bank they tend to want to either cash in their stock grants or take a top job with the new conglomerate. BankAtlantic's chief executive, Alan B. Levan, decided to spin off the franchise as the institution's diminishing equity threatened its solvency.

"In the environment that we're in you have to be creative," said Jacob Thompson, an investment banker in Dallas with Samco Capital Markets Inc.,

which advises small banks. "When you've got a troubled seller, the options are limited in terms of how you can get a deal done."

One of the main barriers to deals for sellers right now is the limited number of buyers.

The favorable terms for BB&T's side of the deal underscore the lack of capable buyers. Other members of the strong enough-to-buy club such as

PNC Financial Services Group Inc. and Toronto-Dominion Bank are busy closing or absorbing their own big purchases.

BB&T is taking a bigger share of the lucrative Florida market in a low-risk way. It is getting BankAtlantic's 78-branch franchise for the price of its $3.3 billion of deposits.

The premium it is paying for them is a strikingly high 9%. But that price is justified by what is not part of the deal. BB&T does not appear to have to do a risky capital-raise to pay for it. It only expects to lose money on 7% of the $2.1 billion of loans it is receiving, a reasonable

markdown.

The deal should also deflect some of the flak BB&T has gotten from acquisition-hungry investors watching its rivals bulk up. Its last big deal was its 2009 purchase of Colonial BancGroup of Montgomery, Ala.

Other healthy rivals such as M&T Bank Corp. and Bank of Montreal, meanwhile, have done multiple deals to broaden their market share in a down economy.

This transaction is a "compelling" deal in an "important long-term market" that matches with BB&T's low tolerance for risk, BB&T CEO Kelly King said in a press release.

Sandler O'Neill & Partners LP and Cantor Fitzgerald & Co. advised BankAtlantic in the deal. Deutsche Bank advised BB&T.

BB&T's stock fell 3.68%, to $22.48, on Tuesday. BankAtlantic shares rose more than 110%, to $5.