A smattering of monster-to-midsize banks brandishing healthy balance sheets and a newfound appetite for bargain-hunting in the wake of the subprime disaster may be at the heart of a new flurry of megadeals on the horizon. But which targets are banks such as J.P. Morgan and Goldman most likely to go after? Say no more; we have your cheat sheet here – plus a sneak preview of how the rapidly changing landscape likely will lead to at least a few dust-ups for the weaker links of private equity.

It's time to pounce for J.P. Morgan Chase & Co. Chief Executive James Dimon and other top bosses of financial companies that have avoided a serious battering from the credit crunch.

Emboldened by a healthy balance sheet and stock that yesterday vaulted J.P. Morgan ahead of Citigroup Inc. in market capitalization, Mr. Dimon is showing how aggressively some survivors of the continuing carnage are revving up their expansion ambitions, both through takeovers and pushing hard in businesses where rivals are in retreat.

Despite a 34% drop in fourth-quarter profit and tighter underwriting standards, J.P. Morgan said its mortgage-origination volume surged by about a third compared with a year earlier. Taking advantage of the free fall at many mortgage lenders, J.P. Morgan has boosted its share of the U.S. mortgage market to about 11% from 6% six months ago, according to Michael Cavanagh, the New York bank's chief financial officer.

But the real excitement likely is yet to come. After a three-year drive to slash costs and invest heavily in technology and core businesses, Mr. Dimon yesterday declared that the battered financial landscape "just may make it more likely" that J.P. Morgan will make acquisitions, as analysts and investors have widely anticipated.

"In terms of buying assets or buying companies, we are very open-minded," Mr. Dimon said in a conference call with analysts.

He gave few details. But when Mr. Dimon clinches a deal, it is likely to be a whopper. The 51-year-old banker wants to expand J.P. Morgan's retail footprint in high-growth markets like California and the Southeast, even though those places have been hit hard by the housing downturn.

Mr. Dimon has long coveted institutions like Atlanta's SunTrust Banks Inc. and Washington Mutual Inc. of Seattle. Shares of both those banks have fallen sharply since the credit crunch struck in August, making them potentially cheaper targets. Washington Mutual, the country's biggest thrift, has been hit especially hard by its exposure to the mortgage industry.

With so many Wall Street firms on the ropes, Mr. Dimon might even be tempted to take a hard look at firms such as Morgan Stanley and Bear Stearns Cos., either for specific assets or something even bigger. Mr. Dimon and other J.P. Morgan executives have long played down the notion of pursuing a big investment-banking deal.

While no blockbusters have happened yet, a handful of other financial institutions also are in a strong position to capitalize on their success in generally avoiding the land mines blowing up around their competitors.

Goldman Sachs Group Inc., fresh off record profits in its latest fiscal year, has made a handful of mortgage-related acquisitions. Last month, Goldman bought Litton Loan Servicing LP, a mortgage-servicing company, for roughly $500 million, according to people familiar with the situation. Recently, Goldman completed the purchase of Money Partners Ltd., a mortgage lender in the United Kingdom that expands Goldman's reach in the European mortgage market.

Regional bank Wells Fargo & Co. has acquired three smaller banks in the past six months. The latest: a deal announced Monday to buy United Bancorp Inc. of Wyoming. Financial terms weren't disclosed. "We'd like to do more of these same kinds of transactions," said Howard Atkins, Wells Fargo's chief financial officer. "This is the kind of environment that makes that possible."

Similarly, executives in the private-equity market expect a shake-out in that industry, as weakened firms look for a haven among stronger performers…

(Continue reading on The Wall Street Journal)

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