Faced with low interest rates and intense competition for consumer deposits and loans from financial giants, regional banks may rush to merge this year to keep pace with larger rivals.
So says Dick Bove, chief financial strategist at Odeon Capital and a veteran bank industry analyst, who tells CNN Business that this year could be the biggest for bank mergers since 1998.
Already big banks may need to get even larger
In that year alone, Wells Fargo bought Norwest, NationsBank acquired Bank of America; and Citibank and Travelers merged to form Citigroup. The Citi deal was the nail in the coffin for the Depression-era Glass-Steagall law that prevented banks from owning insurers and brokers — a merger that would have been illegal had Congress had not repealed it.
Citigroup spun off Travelers in 2002 as a separate company that it is now one of the 30 stocks in the Dow.
Now banks are under pressure once again to grow.
“The nation’s biggest banks have set a target to increase their market share by taking business from the biggest regionals,” Bove said in an email to CNN Business. “The competitive battle is likely to force the regionals to merge to gain the cash flows and scale necessary to ward off the attack.”
That seems to have been the main impetus for last year’s merger between Southeastern regional banking giants SunTrust and BB&T. That deal created a new bank — now known as Truist — which is the sixth-largest bank in the United States.
Bove views low interest rates as a headwind for many banks, which have already enjoyed most of the gains from a series of stock buybacks. That, and the recent round of corporate tax cuts, has helped banks boost earnings.
“Banks are running out of the benefits that have driven the strong earnings performances in the past decade,” Bove said.
Asher will also be joined by Sam Stovall, chief investment strategist at CFRA, to talk about the markets.
Stovall has said that the brief market sell-off earlier this month following the killing of Iranian General Qassem Soleimani in a US drone attack will prove to be just that.
He added in a recent report that while investors expect Corporate America to post a slight drop in fourth quarter earnings, actual results usually top analysts’ expectations. Earnings could very well have increased in the fourth quarter — news that could keep the market rally going.
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