One Good, One Bad: ETFs For Regional Bank M&A

News of Bank of Montreal's

acquisition of Marsall & Ilsley has reignited speculation about what regional bank will be next to be acquired. Plenty of analysts have speculated throughout 2010 that any number of regional banks that were battered during the financial crisis could be acquired in 2011 as larger rivals start deploying their hoards of cash. That scenario may play out, but be careful when choosing ETFs as a way of playing a fresh round of banking M&A. The Regional Bank HOLDRs

is deceiving ETF #1. Yeah, it says regional banks, but it's doubtful anyone considers JPMorgan Chase

, RKH's top holding at a whopping 21.7% of the ETF's weight, a regional bank. Wells Fargo

at more than 20% of RKH could be a buyer, but with State Street

and Bank of New York Mellon

in the mix, RKH is not the best way to play regional banking M&A. The SPDR KBE Bank ETF

is a little better. Regional banks that could be targets such as Fifth Third

, Huntington Bancshares

, Regions Financial

and SunTrust

dot KBE's top-10 holdings. Of the aforementioned quartet, the first three are legit targets, but SunTrust has been rumored to be a takeover target since the 1990s and no deal has materialized. Don't hold that against KBE because the ETF has enough exposure to more legit regional bank targets to make it a worthy M&A play.