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By Stephen Gandel

NEW YORK, Oct 6 (Reuters Breakingviews) - Fifth Third FITB.O time's the charm. After two chunky bank mergers earlier this year fell short of the financial mark, the regional U.S. lender's deal to buy rival Comerica CMA.N gets the math right. It generates scale and savings with a sensible structure, providing a handy guide to more industry consolidation. The only problem is that few peers will be able to follow it.

The collapses of Silicon Valley Bank and Signature Bank in 2022 renewed prospects for more M&A. Higher interest rates and technology costs have made it even harder for midsize banks to compete with JPMorgan JPM.N and Bank of America BAC.N. Few deals materialized, however, partly because of the Biden administration’s skepticism. When the new White House broom swept in, the ensuing transactions left investors cold.

Pinnacle Financial PNFP.O lost 12% of its value after unveiling a plan to unite with Synovus and PNC’s PNC.N stock price tumbled 3% when it said last month that it would buy FirstBank, despite limited dilution of its shareholders. Fifth Third's are losing 25% of their ownership in the expansion, but the shares have dipped just 1%.

The acquisition engineered by Fifth Third CEO Tim Spence makes more sense. Pinnacle and Synovus are fusing two nearly equally sized banks, which often invites more difficult integration challenges. Their cost-saving projections also look ambitious, aiming to spend less than half of revenue on fixed expenses. PNC’s issue is price: it's shelling out more than 2.3 times FirstBank’s tangible book value, while growing its balance sheet by less than 5%.

By contrast, Fifth Third will pay 1.75 times tangible book value. The lower multiple may reflect Comerica's underperformance: its adjusted return on equity was just 7%, compared to Fifth Third’s 17%.

Some $850 million of anticipated annual cost savings are worth more than $5 billion, once taxed and capitalized, and after backing out $1.3 billion of restructuring costs. With its 73% stake in the combined bank, Fifth Third will keep nearly $4 billion of the synergy value, roughly double the $2 billion premium it's paying. Small wonder that Comerica's activist investor, Holdco, reckoned Fifth Third could afford to pay more than a quarter more.

The deal looks designed to succeed, if Spence can deliver on his promises. Fifth Third's template also may hold appeal for others. Only a couple dozen U.S. lenders have between $100 billion and $1 trillion of assets, however, with roughly the same number of targets sufficiently big enough to be of interest to them, according to data from Kroll Financial Intelligence. That probably augurs more smaller, or bad, bank M&A.

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CONTEXT NEWS

Fifth Third said on October 6 that it had agreed to buy rival Comerica for $10.9 billion in stock to create the ninth-largest U.S. bank with nearly $290 billion of assets.

Under the terms of the deal, Comerica shareholders will receive 1.8663 Fifth Third shares for each Comerica share, or $82.88 apiece, an 18% premium to where they closed on October 3. Fifth Third's shareholders would own about 73% of the combined company and Comerica's the rest.

Goldman Sachs is advising Fifth Third and JPMorgan is advising Comerica.

(Editing by Jeffrey Goldfarb; Production by Pranav Kiran)

((For previous columns by the author, Reuters customers can click on GANDEL/ stephen.gandel@thomsonreuters.com))