Piecing Together the M&A Puzzle

Admit it. You love a big deal. Don’t we all?

Sure, most bank merger and acquisition activity involves smaller transactions that are clearly important to the institutions involved and often jolt the competitive dynamics of local communities. But when it comes to sheer sexiness and ground-shaking oomph, nothing beats the big guys laying down big bucks for a big deal. Who among us didn’t scour the details of this year’s first announced large acquisition, Capital One Financial Corp.’s $14.6 billion acquisition of North Fork Bancorp, searching for insights on where the market is headed?

Even without a direct connection, the big companies’ M&A moves set the tone for everyone elseu00e2u20ac”in terms of pricing, strategy, and impact. Consider the fallout from one of the last big bank-for-bank dealsu00e2u20ac”Bank of America Corp.’s 2003 acquisition of FleetBoston Financial Corp.u00e2u20ac”accompanied as it was by branch divestitures, customer defections, and a rejiggering of New England’s competitive landscape.

Is the North Fork deal a harbinger of things to come or merely a one-off by a credit card company looking to diversify from its core business? It depends on who you ask. But one thing is certain: By at least one crucial measureu00e2u20ac”deal valueu00e2u20ac”we’ve already surpassed a 2005 that can only be described as lackluster. According to SNL Financial in Charlottesville, Virginia, last year there were 259 transactions worth a combined $29 billion, well off 2004’s $131.5 billion in deal values. The first deal to close in 2006u00e2u20ac”Bank of America’s $34 billion purchase of card giant MBNA Corp.u00e2u20ac”outdid that figure all by itself.

That’s what could make 2006 interesting. Big deals can be contagious, with one serving as a catalyst for others. Think 1998, when several of the nation’s biggest financial institutions joined forces to create today’s Citigroup, Bank of America, and Wells Fargo & Co. It’s all guesswork until something happens, of course. But the most tantalizing of this year’s potential blockbusters involves forging a bridge between the two most demographically attractive marketsu00e2u20ac”the Southeast and Westu00e2u20ac”to create another nationwide bank. The possibilities are intriguingu00e2u20ac”Wachovia Corp./U.S. Bancorp, for example, or Wells Fargo/SunTrust Banks, Inc. Hmmm.

“There are some big blockbusters waiting to happen, because the jigsaw puzzles for a number of big banking companies are incomplete,” says Andrew Senchak, president of Keefe Bruyette & Woods, the New York investment bank.

There are several roadblocks that need to be overcome before any such sizeable deals are consummated. With the likely partners in such “manifest destiny” scenarios doing well and unwilling to give up their own cultures, leadership positions, and even headquarters cities, many analysts say a big merger of equals is tough to envision. Compared to the late-’90s, the entire mindset has changed: Instead of racing to build through acquisition, today’s big banks are “highly deliberate, looking for competitive advantages and strategic fit,” says H. Rodgin Cohen, chairman of New York-based Sullivan & Cromwell LLP, one of the top M&A law firms in the country. “They’re in no hurry.”

That makes smaller, fill-in deals a greater possibility, although challenges loom on that front, as well. The typical big bank is trading for somewhere between 11 and 13 times projected 2006 earnings; smaller institutionsu00e2u20ac”especially those pegged as likely takeover candidatesu00e2u20ac”are fetching premiums that are a few points higher. And for the time being, many banks are doing well enough to get by. “I can tick off bank after bank that would make good combinations,” says Tony Plath, a finance professor and banking expert at the University of North Carolina at Charlotte. “The problem is there are no financial imperatives right now forcing them to consider deals. Most banks are making good money sitting right where they are.”

What might break the logjam? Improved pricing would likely give several of the big guys a kick in the pants. As the year moves forward, many observers expect that some regional and community banksu00e2u20ac”i.e., those more dependent on interest incomeu00e2u20ac”will experience earnings stumbles related to the flat yield curve that will bring their multiples down closer to the big banks. This was one of the reasons given for North Fork’s decision to sell out to Capital One last March. North Fork’s balance sheet was liability sensitiveu00e2u20ac”which means its funding repriced sooner than its assetsu00e2u20ac”and the steady increase in rates was eating away at its profitability.

Another possibility: a bank or twou00e2u20ac”under more traditional sale pressures such as succession or regulatory issuesu00e2u20ac”may lower their pricing expectations, starting a trend. “Banks that need to sell are going to be forced to make some concessions, and as time goes on, the realities of those concessions will become part of the market,” Senchak predicts. “It’s like Chinese water torture. It’s going to take some long-term dripping to erode the hardened notions of value.”

In the meantime, expect certain asset classes to be hot commodities. Some, such as credit cards, where the top 10 players control 90% of the market, have already consolidated. Others, including mortgage and auto loans, still have a ways to go. “Asset classes are consolidating,” declares Wachovia Chief Executive Officer Kenneth Thompson. “If you can build some scale in a business, then you can exploit it” and gain efficiencies and pricing power.

Bank Director wanted to handicap the possibilities and therefore talked to investment bankers and lawyers who looked at past history, glaring strategic or geographic gaps, pricing potential, and the strength of currency of would-be buyers in the market today. Just remember, deals that are talked about seldom get done as envisioned. But hey, it’s fun to speculate anyway, right?


Assets: $1.49 trillion

Deposits: $581 billion

Recent market cap: $234 billion

P/E ratio (based on projected 2006 earnings): 11.0

The world’s biggest financial institution is a surprisingly small retail player in its home U.S. market, with $206 billion in domestic depositsu00e2u20ac”and over 60% of that total in New York. Could that be poised to change?

The rumor mill has been hot and heavy with talk of a potential bid for Seattle-based Washington Mutual Corp. The deal makes sense for the simple fact that it would give Citi 2,600 retail branches and origination offices in high-growth markets like Texas, Florida, and California. “Citi needs more retail distribution across the U.S.,” says Fred Cummings, an analyst with KeyBanc Capital Markets in Cleveland. “If you wanted to add those states to your footprintu00e2u20ac”and Citigroup doesu00e2u20ac”then you’d have to look hard at a company like Washington Mutual.” And today Wamu, with its reliance on mortgages, looks vulnerable.

Even so, most observers doubt a Wamu deal will actually happen. For one thing, Wamu’s share price has rebounded in recent months, making an acquisition more expensive. And some observers say Citi lacks the bench strength to manage a large U.S. retail franchise. “It makes sense on a map, but Citigroup would have to change the way it operates to incorporate such a big branch system,” Senchak says.

Citi has always been more interested in international expansionu00e2u20ac”at press time, another rumor surrounded a possible deal for French giant Sociu00c3u00a9tu00c3u00a9 Generaleu00e2u20ac”and some say there’s little reason to expect a change. Ajay Banga, head of Citi’s international consumer bank, recently told investors that Brazil, China, India, and Korea offered some of the best opportunities for expansion. “They’ll look to add to their international franchiseu00e2u20ac”Asia, Eastern Europe … places where the economies are growing faster than in the U.S.,” says John McDonald, an analyst with Banc of America Securities in Charlotte.


Assets: $1.3 trillion

Deposits: $627 billion

Recent market cap: $185 billion

P/E ratio: 10.6

The Charlotte-based behemoth is the only truly national bank, and is far and away the biggest of the country’s retail banksu00e2u20ac”so large, in fact, that any significant banking deal is pretty much out of the question, because it’s bumping up against the FDIC’s 10% limit on nationwide deposits. “It’s limited on the banking front, and isn’t likely to do any deals there,” says Joe Morford, a San Francisco-based analyst for RBC Capital Markets.

That doesn’t mean, however, that the company won’t be buying other pieces for the empire this year. “It made almost $17 billion [in profits] last year,” says UNC’s Plath. “It’s got to either reinvest it or pay one helluva big dividend back to shareholders.”

So where will BofA be looking? For now, the company is busy digesting its MBNA purchase. Observers, however, expect to see more transactionsu00e2u20ac”and sooner, rather than later. “I wouldn’t be surprised to see them do something significant on the asset management side,” Morford says. “It’s a business they’re looking to build out, and it would help them on the fee side.”

Potential targets include powerful names, such as mutual fund company Janus Capital Group or UBS AG, the big Swiss-based asset manager and investment banking firm. While the multiples in that business are much higher than BofA’s, CEO Ken Lewis hasn’t been shy about paying up for deals in the pastu00e2u20ac”the $47 billion BofA paid for FleetBoston represented a 41% premium over its closing price the day before. “They’ve always understood that you have to give up something on pricing to get a good strategic fit,” Plath says.

Insurers and niche retail lenders are also on the radar screen. “Whatever it is, it’s got to be consumer in nature. It’s got to benefit from economies of scale and offer some good cross-selling potential. And it’s got to be profitable,” Plath adds.


Assets: $1.2 trillion

Deposits: $496 billion

Recent market cap: $144 billion

P/E ratio: 12.1

The nation’s No. 3 banking company, the product of so many mergers itself, is a consumer-asset powerhouse. What it needs are depositsu00e2u20ac”and national retail reach. “It’s really the logical buyer for Wamu,” says Tom Brown, president of Second Curve Capital, a hedge fund that focuses on financial stocks. As with Citi, JP Morgan needs to move Westward; unlike Citi, it has an aggressive CEO in Jamie Dimon, with plenty of experience doing accretive deals.

Dimon is said to be beating the bushes for a deal of some kind. “He’s out talking to everybody, trying to create a little smoke,” Senchak says. Brown adds that acquisitions of National City Corp., SunTrust, or Cincinnati’s Fifth Third Bancorp aren’t out of the question. U.S. Bancorp is another possibility, as is Cleveland-based KeyCorp, with its sprawling retail network.

Senchak argues that PNC Financial Services Group, with its strong mid-Atlantic presence, would be a nice fit, bridging the gap between the East Coast and the old Bank One Corp. franchise in the Midwest. “JP Morgan needs better retail geography,” he says, and PNC “would link its Ohio and New Jersey businesses and give it good coverage.”

Another area where Dimon could turn his attention: investment banking. “One of the blockbusters that gets talked about is a combination of JP Morgan Chase and Morgan Stanley,” Brown says. “It’s a business Jamie Dimon understands very well and would fit in nicely with what he’s already got.”


Assets: $521 billion

Deposits: $322 billion

Recent market cap: $86 billion

P/E ratio: 11.8

Tony Plath helped out on a management retreat with some top Wachovia executives early this year and walked away believing that a big banking deal could happenu00e2u20ac”if the pricing is right. “Sometime last year, there was a change of direction in their thinking about wanting to be a nationwide, coast-to-coast bank,” he says. “Wachovia is ready to act. From an operating standpoint, a systems standpoint, and an administrative standpoint, they’re ready to do a major deal tomorrow.”

Being ready and finding the right opportunities, of course, are two different matters, but Wachovia is sitting in one of the industry’s most intriguing positions. For one, it has an unusually low loan-to-deposit ratio of about 80% (many big banking companies are in the 90%-plus range), meaning it could digest additional asset generators easily. For another, its stock is trading at higher multiples than in the past.

So what does CEO Ken Thompson do? On the retail side, analysts say the vision includes creating a U-shaped geographical franchise that encompasses the eastern seaboard, stretches across the south through Texas, and slithers its way up the West Coast. That’s what gets tongues wagging about potential combinations with the likes of U.S. Bancorp.

Building up Texas is another priority, but aside from a few mid-sized local players, such as Cullen/Frost Bankers in San Antonio, Dallas-based Texas Capital Bancshares, or Houston’s Sterling Bancshares, there isn’t much left to give instant scale. Another possibility, Plath says, would be buying either National City or Columbus-based Huntington Bancshares to move into the Midwest. “They have three directions to pursue: go to the West Coast with a major deal, get big in Texas with smaller deals, or head into the Ohio Valley,” Plath says.

All that sounds reasonable. But Thompson holds the purse strings tightly nowadays and is clearly not excited about the pricing on banks that would provide the critical mass he desires. Digestible institutions in California, including Unionbancal Corp. and WestAmerica Bancorp, trade at midteen multiples.

So he’s moving cautiously, focusing much of his M&A attention on asset classes while keeping a long-term eye on the retail scene. Among the more interesting 2005 moves: the sale of its corporate trust and institutional custody business to U.S. Bancorp. “If you’re not growing fast and don’t have scale, then it makes sense to redeploy your capital elsewhere,” Thompson explains.

Last year’s $3.4 billion purchase of WestCorp, an Irvine, California nonprime auto lender, gives it more critical mass in a niche where many smaller players are expected to come up for sale. “It’s a nice fit for us, because it will generate loans at a higher margin than we typically get,” Thompson says. WestCorp also provides a small retail banking presence in Southern California. “It has enough of a presence where it can get to know the market, make some friends, and develop political connections,” Plath says. “It’s preparing for its next acquisition there.”

WELLS FARGO & CO., San Francisco

Assets: $482 billion

Deposits: $289 billion

Recent market cap: $108 billion

P/E ratio: 12.9

CEO Richard Kovacevich has a reputation for being the industry’s most disciplined dealmaker. Aside from the 1998 merger of Norwest Corp. and the old Wells, he’s never done a huge transaction, and that deal was so disruptive, Kovacevich says he has little desire to do another. “We’re growing revenues at double-digit rates in one of the toughest environments of the past 20 years, and people think we want to do another big deal?” he asks, almost incredulously. “I won’t say it can’t happen. But it’s so unlikely, that it just doesn’t make sense to discuss.”

Matters are complicated by Kovacevich’s plans to hand over the CEO reins to current President John Stumpf in 2007 or 2008 and by the March retirement of John Ganoe, an executive vice president who has been a chief architect of the company’s acquisition strategy.

For the record, if he did a big deal, Kovacevich says it would have to be a “low- or no-premium” transaction, and the target would have to be a good cultural fit. Analysts say candidates might include BB&T Corp., which places a similar emphasis on cross selling, or troubled Fifth Third Bancorp. But don’t bet on anything. “We never, from a banking perspective, intended to go east [of the Mississippi],” Kovacevich says. “And we still don’t.”

All of that doesn’t mean Wells will be sitting on the sidelines. If it holds true to past form, look for a continued diet of small fill-in dealsu00e2u20ac”the company has done more than 250 such acquisitions over the past 20 yearsu00e2u20ac”with favorable pricing and acquisitions in out-of-favor asset classes and businesses where the price is right. Wells’ 2005 purchase of Strong Financial Corp., a Milwaukee mutual fund manager that was battered by a market-timing scandal, is viewed as a template. “Most banks weren’t willing to even look at Strong,” says RBC’s Joe Morford. “But they’ve proven themselves to be an opportunistic acquirer.” In the past year, the company also has bought a crop insurer, a real estate investment banking company, and a wholesale remittance processing business.

Second Curve Capital’s Brown predicts that the mortgage business, where Wells is already one of the biggest players, could offer similar opportunities in the coming year under the pressure of rising rates. “You could certainly see a situation where some distressed mortgage companies come up for sale, and Wells is an active buyer,” he says.


Assets: $352 billion

Deposits: $193 billion

Recent market cap: $42 billion

P/E ratio: 11.0

When it comes to retail banking, few companies are more active than the nation’s largest thrift. CEO Kerry Killinger says he plans to open as many as 200 additional retail branches this year. But Wamu hasn’t been a big M&A player of lateu00e2u20ac”it did one big deal in 2005, a $6.5 billion acquisition of Providian Financial Corp., the big credit-card companyu00e2u20ac”and while its stock surged late last year, analysts say it still doesn’t have a strong enough currency to make a big merger splash. “They can’t really do a deal with their stock and P/E,” KBW’s Senchak says.

Most of the speculation centers on Wamu as a seller. With strong retail footholds in California, Florida, Texas, New York, and Chicagou00e2u20ac”where it has struggled to attract depositsu00e2u20ac”the company offers an attractive footprint for any giant interested in buying its way into key growth markets. And it could become vulnerable if, as many pundits expect, higher interest rates continue to slow down the mortgage origination business. Indeed, several analysts see parallels between Wamu’s balance sheet and that of North Fork’s, and say the same factors that pushed North Fork CEO John Kanas to sell might ultimately lead Killinger and his board to the same conclusion.

U.S. BANCORP, Minneapolis

Assets: $209 billion

Deposits: $121 billion

Recent market cap: $55 billion

P/E ratio: 11.7

One word: payments.

At a recent investor conference, Chief Operating Officer Richard Davis was blunt: Most of USB’s M&A attention will be devoted to building what has become a powerhouse payments business, generating $573 million in fees during the fourth quarter of 2005. The industry is still consolidating, with plenty of mom-and-pop-style operations to be had, and USB is intent on getting bigger. “They want to continue building fee income,” KeyBanc’s Cummings says. He sees First Horizon National Corp., an Irvine, Texas firm that does banking, consumer loans, and processing, as a potential USB target.

The idea, being duplicated by some other big players, is to get scale and strength in certain key areas of competence. Another forte USB has been focusing on is corporate trust. In January, it closed on the $720 million purchase of Wachovia’s corporate trust and institutional custody businesses.

As for banking acquisitions, don’t expect anything big. Today’s USB is the product of several high-profile acquisitions near the turn of the century, and CEO Jerry Grundhofer has since spent years convincing investors that he isn’t a deal junkie. “They’ve learned that when they don’t do deals, their stock doesn’t go down,” Senchak says. Don’t rule out smaller fill-in deals in California, however.


Assets: $179 billion

Deposits: $114 billion

Recent market cap: $27 billion

P/E ratio: 12.2

In 2004, SunTrust paid $7 billion for Memphis-based National Commerce Financial Corp. The transaction gave it a chance to turn the tables on Wachovia, by giving it a decent presence in the Carolinas after years of fending off its most hated rival (and BofA) on its own home turf. The deal also gave it a solidu00e2u20ac”if somewhat out-of-characteru00e2u20ac”growth platform in the old NCF’s high-octane sales culture and its relationship as operator of choice for Wal-Mart’s in-store banks across the Southeast.

With its fast-growth footprintu00e2u20ac”SNL projects 2003-2008 population growth of 8.4% in SunTrust’s states, compared with 4.8% for the nation as a wholeu00e2u20ac”and opportunities for de novo growth looking plentiful, don’t expect SunTrust to rush out and do a deal any time soon. Management is still stinging from the defeat it suffered at the hands of the old First Union Corp. in a 2001 bidding war for legacy Wachovia.

CEO Phil Humann said in an interview last year that a top priority is to avoid diluting the franchise by doing transactions in slower-growth states, such as Alabama or Mississippi, that have “inferior demographics” compared to SunTrust’s current stomping grounds. Better, he reasons, to do smaller fill-in deals that play to SunTrust’s strengths, such as a December purchase of 11 Wal-Mart branches in the Miami area from Community Bank of Florida.

“Would they be open to doing deals in the mid-Atlantic or [the District of Columbia] or Maryland? Sure. Would they be open to fill-in deals in the Carolinas? You bet,” says Kevin Fitzsimmons, director of equity research for Sandler O’Neill & Partners. Potential targets include Mercantile Bank & Trust Co. or Provident Bankshares Corp., both of Baltimore, or a smaller banking company along the Carolina coast.


Assets: $142 billion

Deposits: $83 billion

Recent market cap: $21 billion

P/E ratio: 11.4

In recent years, National City has made a lot of money off the mortgage origination boom. With the market cooling, it needs to find a way to replace those earningsu00e2u20ac”and distract investors from the slowdown. An acquisition could be just the ticket.

The most likely targets? Sandler O’Neill analyst Scott Siefers says National City will probably stick to traditional banking transactions, and Cummings agrees. “They like St. Louis and the Missouri market. They want to be in the state of Kansas. They clearly like Chicago,” Cummings says. “Those are markets they understand, and Midwest banks have performed fairly well.” Senchak says Florida also could be a possibility. “They have a lot of clients down there, and no one gets punished for buying a bank in Florida.”

Also don’t rule out a deal closer to home, in the form of either crosstown rival KeyCorp or FirstMerit Corp., a $10 billion banking company based in nearby Akron. “If FirstMerit were to sell, they could eliminate a competitor and get some more scale,” says one investment banker who asked not to be identified.

BB&T CORP., Winston-Salem

Assets: $109 billion

Deposits: $73 billion

Recent market cap: $22 billion

P/E ratio: 12.3

In a recent analyst meeting, BB&T CEO John Allison IV laid his views on the line. According to Sandler’s Fitzsimmons, “He said, ‘We’re open to acquisitions. That’s our history, and we want to jump back in this year.’” In fact, BB&T already has, announcing two bank dealsu00e2u20ac”one for $2.5 billion Main Street Banks in Atlanta, the other for First Citizens Bancorp, a $700 million institution in Cleveland, Tennesseeu00e2u20ac”near the beginning of the year. Those were sandwiched between fourth-quarter acquisitions of an Atlanta-based mortgage servicing platform and a New Jersey brokerage firm and a February deal for FSB Financial Ltd., a subprime auto finance firm in Arlington, Texas.

Five deals in five months. Could more be in the works? The company struggled mightily with morale, payroll, and other internal issues in the wake of its 2003 purchase of First Virginia Banks but has now cleared those hurdles and is eager to expand in fast-growing parts of its footprint, including Florida, Georgia, and the Washington, D.C. area.

“They want to be in Jacksonville and Palm Beach and [Florida’s] west coast. And they want to be in Orlando,” Fitzsimmons says. Potential candidates include $3 billion Harbor Florida Bancshares in Ft. Pierce and Fidelity Bankshares, a $4 billion institution in West Palm Beach.

Tony Plath says BB&T needs to consider larger deals. “The debate for the management team is whether or not they continue to do $5 billion [in assets] acquisitions,” he explains. “Those size deals were great when they were a $60 billion bank. At their present size, it doesn’t do as much for the bottom line.”

Several investment bankers see Birmingham-based Compass Bancshares as an attractive BB&T match. “It would make them a very interesting company, with more scale and a geography that stretches from Virginia to Texas,” KBW’s Senchak says. Plath argues that a move to the Ohio Valley, via a combination with National City or Columbus-based Huntington Bancshares, could pay off big, because the area is crawling with small businesses. “BB&T is one of the best small-business lenders out there.”


Assets: $105 billion

Deposits: $65 billion

Recent market cap: $21 billion

P/E ratio: 13.7

Some observers view Fifth Third as a potential takeout target. Under CEO George Schaefer, the company had long outperformed most peers. Schaefer, in turn, used that higher-priced currency to expand out in concentric circles from his home base.

But Fifth Third took a big accounting-related charge in 2003, and the Federal Reserve hit it with an enforcement action, citing poor risk management systems. The company’s share price has plummeted since, from near $70 to below $40 recently. And last year it lost its highly regarded vice chairman and heir apparent Neal Arnold. The company also has been operating without a CFO since last September and has seen the departures of several regional presidents. In March, ISS Proxy Advisory recommended that shareholders withhold votes to reelect four directors, including Schaefer. “Right now, it’s a broken franchise,” Brown says. “They have the conditions that make them ripe to want to seek out a partner.”

Among the possible buyers: JP Morgan Chase, BB&T, or Citizens Financial Group, the Providence-based subsidiary of the Royal Bank of Scotland. “They’ll probably become a piece in someone else’s puzzle,” KBW’s Senchak concludes.

Not so fast. Sandler O’Neill’s Siefers says Fifth Third’s recent problems amount to “a hiccup.” He expects the companyu00e2u20ac”which still fetches a higher premium than most big-bank peersu00e2u20ac”to be a buyer, perhaps in Florida, where it has already made several deals, including a $1.6 billion purchase in 2004 of First National Bankshares of Florida. “There are only four or five other big banks with as good of a P/E,” Senchak says. “And they’re very good at doing deals.”



Assets: $92 billion

Deposits: $60 billion

Recent market cap: $20 billion

P/E ratio: 14.1

Over the past year, PNC has emerged as one of the hottest banks in the country, with a P/E ratio to match. In February, Merrill Lynch agreed to take a 49.8% stake in BlackRock, an asset manager 70% owned by PNC. Among other things, the deal frees up $1.6 billion in capital, which can now be used for something else.

While the board has authorized share repurchases and Chairman and CEO James Rohr has been talking about a dividend hike, Brown says some kind of banking deal could be in the offing. “There are different ways to deploy that capital, but they can create the most value by making a smart acquisition,” he says. “What they need is patience to look at a lot of deals and choose the right ones. If they do that, they can help create the next 10 years of growth.”

Even before the BlackRock deal, PNC was busy in 2005 buying Riggs National Corp., a Washington, D.C. bank that ran afoul of federal regulators over lax money-laundering controls, for a bargain-basement price. It also bought Harris Williams & Co., a middle-market M&A advisory firm that plays to a core lending strength. Vice Chairman William Demchak says management will be “looking to grow our footprint through retail acquisitions” with a special emphasis on “expanding into contiguous areas” that build out from its eight-state region.

The big holdup is the acquisition premium that’s already built into the stocks of smaller banks in attractive markets. Demchak sees two potential avenues out of that box: a narrowing of the gap between large- and small-bank stocks, sparked by earnings drops due to yield-curve troubles; or simply buying in markets that aren’t deemed as being terribly attractive. “We want good demographics. But I’d rather pay 12 times earnings to get into West Virginia than 20 times earnings for New Jersey,” he says.

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