Regional Bank Consolidation Expected to Heat Up
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In a research note from Thursday morning, Goldman Sachs argued that while regional banks have been stuck in the mud recently, potential M&A activity over the next 12 to 18 months could get the sector going.
Analysts at the firm said banks with under $5 billion in assets are at cost disadvantages and, with upcoming regulatory changes, scale is more important than ever. Goldman said larger regional banks are less likely to be acquired.
Instead the firm focused its analysis on regional banks which have dominance in markets where BofA (NYSE: BAC), JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC), and Citi (NYSE: C) have little presence.
While some have expressed disappointment with the lack of M&A during this cycle, Goldman contends this cycle is tracking in-line with the 1990s. "Coming out of the early 1990s' credit cycle, it took nearly two years post the peak in charge-offs before deal activity meaningfully increased and remained elevated," the firm stated.
The U.S. is over-banked compared to the rest of the world, according to Goldman. The U.S. has 25 banks per million people, versus 2.1 banks for Japan and 2.5 banks per million for Canada.
Deals can create significant shareholder value and, at the same time, buyers can create value for their own shareholders via accretive transactions, Goldman said.
Based on demographics, market share, and cost efficiency the following banks topped Goldman's lists:
Banks with $30 to $10 billion in assets; the Top 5 were: People's United Financial, Inc. (Nasdaq: PBCT), TCF Financial Corporation (NYSE: TCB), First Horizon National Corporation (NYSE: FHN), Bank of Hawaii Corporation (NYSE: BOH) and Susquehanna Bancshares, Inc. (Nasdaq: SUSQ).
Banks with $10 to $5 billion in assets; the Top 5 were: United Community Banks, Inc. (Nasdaq: UCBI), Sterling Financial Corporation (Nasdaq: STSA), Boston Private Financial Holdings (Nasdaq: BPFH), Texas Capital Bancshares, Inc. (Nasdaq: TCBI), and First Interstate BancSystem, Inc. (Nasdaq: FBIK).
Banks with $5 to $3 billion in assets; the Top 5 were: Central Pacific Financial Corp. (NYSE: CPF), Sandy Spring Bancorp, Inc. (Nasdaq: SASR), Sun Bancorp, Inc. (Nasdaq: SNBC), Columbia Banking System, Inc. (Nasdaq: COLB), Tompkins Financial Corporation (NYSE: TMP).
Banks with less than $3 billion in assets; the Top 5 were: Middleburg Financial Corporation (Nasdaq: MBRG), Virginia Commerce Bancorp, Inc. (Nasdaq: VCBI), Eagle Bancorp, Inc. (Nasdaq: EGBN), Cardinal Financial Corporation (Nasdaq: CFNL), Bank Mutual Corporation (Nasdaq: BMKU).
Analysts at the firm said banks with under $5 billion in assets are at cost disadvantages and, with upcoming regulatory changes, scale is more important than ever. Goldman said larger regional banks are less likely to be acquired.
Instead the firm focused its analysis on regional banks which have dominance in markets where BofA (NYSE: BAC), JPMorgan (NYSE: JPM), Wells Fargo (NYSE: WFC), and Citi (NYSE: C) have little presence.
While some have expressed disappointment with the lack of M&A during this cycle, Goldman contends this cycle is tracking in-line with the 1990s. "Coming out of the early 1990s' credit cycle, it took nearly two years post the peak in charge-offs before deal activity meaningfully increased and remained elevated," the firm stated.
The U.S. is over-banked compared to the rest of the world, according to Goldman. The U.S. has 25 banks per million people, versus 2.1 banks for Japan and 2.5 banks per million for Canada.
Deals can create significant shareholder value and, at the same time, buyers can create value for their own shareholders via accretive transactions, Goldman said.
Based on demographics, market share, and cost efficiency the following banks topped Goldman's lists:
Banks with $30 to $10 billion in assets; the Top 5 were: People's United Financial, Inc. (Nasdaq: PBCT), TCF Financial Corporation (NYSE: TCB), First Horizon National Corporation (NYSE: FHN), Bank of Hawaii Corporation (NYSE: BOH) and Susquehanna Bancshares, Inc. (Nasdaq: SUSQ).
Banks with $10 to $5 billion in assets; the Top 5 were: United Community Banks, Inc. (Nasdaq: UCBI), Sterling Financial Corporation (Nasdaq: STSA), Boston Private Financial Holdings (Nasdaq: BPFH), Texas Capital Bancshares, Inc. (Nasdaq: TCBI), and First Interstate BancSystem, Inc. (Nasdaq: FBIK).
Banks with $5 to $3 billion in assets; the Top 5 were: Central Pacific Financial Corp. (NYSE: CPF), Sandy Spring Bancorp, Inc. (Nasdaq: SASR), Sun Bancorp, Inc. (Nasdaq: SNBC), Columbia Banking System, Inc. (Nasdaq: COLB), Tompkins Financial Corporation (NYSE: TMP).
Banks with less than $3 billion in assets; the Top 5 were: Middleburg Financial Corporation (Nasdaq: MBRG), Virginia Commerce Bancorp, Inc. (Nasdaq: VCBI), Eagle Bancorp, Inc. (Nasdaq: EGBN), Cardinal Financial Corporation (Nasdaq: CFNL), Bank Mutual Corporation (Nasdaq: BMKU).
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