BB&T (NYSE: BBT), PNC Financial Services (NYSE: PNC), and U.S. Bancorp (NYSE: USB) Show the Opportunity and Challenge of Acquiring Troubled Banks

Fortune Magazine’s recent Street Sweep column profiled three “super regional” banks: BB&T (BBT), PNC Financial Services Group (PNC) and U.S. Bancorp (USB) who represent hope and challenge for the U.S. banking system.

The issue is money. Or in this case … a willingness to spend it. As Street Sweep reported, these super regional banks could acquire some of the smaller banks which are creating such a headache for the FDIC.

But despite decent amounts of cash on hand and growing loan portfolios, these banks are showing a stubborn resistance to ramp up their M&A activity.

The article went on to disclose a bank takeover list recently released by Keefe Bruyette & Wood. The list compiled by analyst Christopher McGratty listed potential buyers and potential sellers. But to show how unsettled the banking world has become, McGratty compiled a third list: potential buyers who could become sellers.

Anybody confused yet?

McGratty puts PNC, BB&T and U.S. Bancorp at the top of his potential buyers list. There is no question that those banks are at the top of any M&A wish list.

However, these banks have also been at the top of the FDIC’s wish list for years — as potential buyers for failed banks — and they mostly haven’t delivered. (U.S. Bancorp did pick up a few, but there were smaller banks that picked up six or eight). Instead the FDIC has been forced to sell small failing banks to other small banks. The “small is beautiful” strategy is purely out of necessity: The FDIC can’t afford to absorb all the assets of those failed banks, and the big banks aren’t going to buy them. The FDIC maintains an email list of about 600 banks that it uses to alert buyers to opportunities in bank failures. Few of the large regional banks have taken the FDIC up on its offers.

Part of the reason is that many of the failed banks are too small to make a difference to a big acquirer. KBW estimates there are 451 remaining banks whose metrics make them look ripe for failures, and their total assets are only $239 billion. With an average of $500 million in assets, it may not be worth the trouble to the super regionals to buy them.

Still, it’s not as if the FDIC couldn’t use the help. Bank failures have metastasized to 83 institutions this year — 250 since the crisis began, and the total $600 billion in assets they held is much bigger than the $400 billion held by all the banks that failed between 1990 and 1993. The FDIC’s fund is stretched.

McGratty believes that banks will start merging on their own again, driven by several trends including a fragmented market — too many banks — aging management, and the need to cut expenses and boost earnings. He believes it may take two or more years for the banking sector to recover, and many banks may not want to limp through it alone.