In light of Capital One’s (COF) $14.6 billion purchase of North Fork Bancorp (NFB), I took a look at the small and mid cap regional banks today to see what ripple effects the acquisition was having. Note that Hedgefolios had both COF and NFB as Up signals before the announcement, and they will not change this week given that the news came out after I finished my weekly analysis. As I mentioned in my post entitled “Ring Me Up,” I tend to shy away from M&A activity and certainly don’t look to speculate on it. Unlike the telecom services sector which has few plays and has become a relatively small component of the market, there are hundreds of regional banks in the Hedgefolios universe. Due to their number and substantial combined market cap, I thought it was worth a further look and discussion because it emphasized several of my concerns with M&A speculation and why I ask - “Can You Bank On It?”

First of all, for months many of these stocks have been pushed down over the impact of increasing rates and credit quality / loan loss provisions. Last time I checked, those threats were still in place and yet today, there was a suspension of this reality. Of course, the financial media had to round up the analysts and pundits to discuss who else is likely to be in play, and I don’t blame them. It makes good entertainment, but does it make for good investment decisions to listen to this speculation and take action on it? Maybe for one or two days, but in my opinion that’s about all it will last.

One of the funniest but saddest commentaries I heard on tv was the usual line that comes out on merger days. It goes something like this - “Acquisitions are always positive because this clearly suggests that somebody thinks this market or sector is undervalued.” Who is this “somebody” and how smart is he / she given that they got it right and the entire market that has been pricing these securities is so stupid? “Can You Bank On It” that it’s not the same person that thought the media sector was undervalued when AOL bid for Time Warner?

With so many of these bank stocks getting a bump today, I just have to wonder how many big banks are available to take on these regional targets. Seems to me that to justify the speculative moves that almost affected the entire sector, each possible acquirer is lining up to buy about 10 regionals, all at the same time. I am just kidding here but I hope you get my point. Not every regional bank is going to get a buyout premium in the foreseeable future. A few probably will get offers, but picking the right one requires a crystal ball and since my crystal ball is small and cloudy, I am just going to stick to the longer term fundamentals and technicals that smooth out speculative moves like today. Hopefully you will do the same.