These regional banks are at greatest risk of being taken over by rivals, according to KBW
- Comerica, Zions and First Horizon might ultimately be acquired by more profitable competitors, according to KBW.
- Larger banks with strong returns including Huntington, Fifth Third, M&T and Regions Financial are positioned to grow through taking over smaller lenders.
- Two other lenders, Western Alliance and Webster Financial, could also consider selling themselves, KBW analysts said.
Banks with between $80 billion and $120 billion in assets are in a tough spot, says Christopher McGratty of KBW. That’s because this group has the lowest structural returns among banks with at least $10 billion in assets, putting them in the position of needing to grow larger to help pay for coming regulations — or struggling for years.
- Zions and First Horizon declined comment. Comerica didn’t immediately have a response to this article. . .
While shares of regional banks have dropped 21% this year, per the KBW Regional Banking Index, they have climbed in recent weeks as concerns around inflation have abated. The sector is still weighed down by concerns over the impact of new rules and the risk of a recession on loan losses, particularly in commercial real estate.
- above $120 billion in assets,
- $50 billion to $80 billion in assets and
- $20 billion to $50 billion in assets.
- Banks smaller than $10 billion in assets have advantages tied to debit card revenue, meaning that smaller institutions should grow to at least $20 billion in assets to offset their loss.
The problem for banks with $80 billion to $90 billion in assets like Zions and Comerica is that the market assumes they will soon face the burdens of being $100 billion-asset banks, compressing their valuations, McGratty said.
On the other hand, larger banks with strong returns including Huntington, Fifth Third, M&T and Regions Financial are positioned to grow through acquiring smaller lenders, McGratty said.
- KBW is also known for helping determine the composition of indexes that track the banking industry.
Banks are waiting for clarity on regulations and interest rates before they will pursue deals, but consolidation has been a consistent theme for the industry, McGratty said.
“We’ve seen it throughout banking history; when there’s lines in the sand around certain sizes of assets, banks figure out the rules,” he said. “There’s still too many banks and they can be more successful if they build scale.”
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