Conditions are better for a wave of US bank mergers, with large deals that carry a price tag of $5 billion or more possible by the end of the year, a UBS AG investment banker said on Tuesday.

US banks are seeing sources of revenue shrink as new regulation puts limits on some fees, while expenses increase from compliance and legal costs, said Gary Howe , UBS co-head of financial institutions group for the Americas.

At the same time, bank earnings are depressed by low interest rates and loan growth is still slow, thanks to credit issues and a sluggish economy.

"Any time we've had those kinds of circumstances, there has been M&A -- and a lot of it," Howe told Reuters in an interview at the Swiss bank's Park Avenue offices.

Moreover, the results of stress tests on banks have cleared the air for some institutions, which could lead them to do deals.

"They have capital to take strategic actions -- whether it's their own capital base or in the context of M&A," Howe said. "From an M&A standpoint, we are extremely bullish."

Howe said his group was looking to hire select senior bankers across the financial institutions sector.

Howe, a veteran investment banker, has advised on a wide range of financial services transactions.

In recent years, his M&A deals include Butterfield Bank's $550 million recapitalization by Carlyle Group and other investors and American Express Co's $1.1 billion acquisition of General Electric Co's Corporate Payment Services.

He also advised Bank of America Corp on several transactions, including its exit from the US government's bailout program, an $18.8 billion equity transaction and the placement of $3 billion of its China Construction Bank Corp stake.

SIX-12 MONTHS Investment bankers have been waiting for healthy bank M&A to pick up following the financial crisis. Deals in the US banking sector fell to $16.1 billion last year, down from $56.2 billion in 2009, Thomson Reuters data shows.

There have been some signs the M&A market is beginning to normalize. In December, Bank of Montreal agreed to buy Marshall & Ilsley Corp for $4.1 billion, offering a 34 per cent premium.

But overall activity remains low. So far this year, US bank deals have totaled $4.4 billion, the data shows.

Howe said it would still take six to 12 months before the pace of bank M&A picks up, as valuations increase further and more sellers begin to feel the price is right.

"Banks are not bought, they are sold," Howe said. "The real issue is the realization by sellers that now's the right time.

"It is going to take some time before the wave is upon us, but it is coming."