PNC's Atlanta branch deal underscores how wary acquisition-hungry banks are as they bulk up in a slow and risky market.

The Pittsburgh bank said Tuesday that it had agreed to buy 27 Atlanta branches from Flagstar Bancorp Inc. for $42 million. It was PNC's third deal for a spinoff this year. Last month it agreed to buy Royal Bank of Canada's U.S. retail bank and closed its purchase of 19 Florida branches from BankAtlantic Bancorp.

Such transactions provide a middle ground between potential takeover targets not quite ready to sell the entire franchise and would-be buyers. As the economy struggles, regional banks need cash, and superbig U.S. and foreign banks want to slim down. The few banks actually on the prowl are hesitant to overpay for hidden problems, meanwhile, preferring smaller-scale deals.

Spinoffs can cut down on unwanted surprises and meet both parties' strategic ends. PNC's deal with Flagstar enables it to get bigger in the South without paying a premium for the deposits, and without absorbing potentially risky loans. Flagstar buys more time to fight for its independence with more cash and freedom to focus on its home markets.

More unwanted branches, loan portfolios and business lines are expected to come to market after a relatively soft first half of the year for spinoffs and whole-bank takeovers.

Financial institution spinoffs in North America fell 21%, to 145 deals, at June 30 compared with a year earlier, while their values rose 28%, to $21.7 billion, according to Dealogic.

Regular mergers involving commercial and savings banks, meanwhile, fell 21%, to 55, while total deal values rose 138%, to $14 billion.

BB&T Corp. Chairman and Chief Executive Kelly King said last week that the Winston-Salem, N.C., company and others may pursue more spinoffs and that BB&T is aggressively looking for insurance deals.

Richard Davis, U.S. Bancorp's chairman and chief executive, said the Minneapolis company would consider acquisitions of small lines of business or small pools of loans.

Some of their peers are already busy. Capital One Financial Corp. said in June that it had agreed to buy ING Group NV's U.S. online bank. Regions Financial Corp. put its Morgan Keegan & Co. brokerage up for sale last month. HSBC Holdings PLC is considering selling its U.S. credit cards book as well as its retail franchise in upstate New York.

The biggest draw of a divestiture is flexibility, experts say. Deal structures are not hemmed in by the strict demands of shareholders and regulators that are typical of full mergers. There is more freedom to arrange loss-sharing agreements or price adjustments tied to loan problems.

Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners LP, said spinoffs allow buyers "to be a little bit more surgical in what they want" without worrying about "all the other baggage" of taking over an entire institution.

"You are paying for a very defined piece of business," Fitzsimmons said.

However, spinoffs are not free of complexities.

Depending on how the deals are structured, they sometimes take longer to close than regular mergers.

Also, the financial benefits of a classic merger are simple: They increase profits by cutting redundant people and branches. Returns on spinoff deals come from boosting revenue, which is a harder and less predictable way to increase profits than cutting costs.


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