Will 2025 be a Bank Eat Bank Year? Who’s on the Menu?

One of our favorite games here at the RJR World Headquarters is trying to guess which banks will be acquired and by whom. We haven’t been very good at it over the past few years because the market hasn’t been very active and the few larger deals that did happen really weren’t on our bingo card. However, since we subscribe to the motto “Often wrong, but never in doubt”, we continue to play the game and have now made out predictions for 2025. While we have identified specific banks that we believe either will be eaten, or deserve to be eaten, we only make those names available to our subscribers. Everyone else will have to guess using the hints we are about to give.

The Outlook

Over the past couple of years, the number of deals between banks has decreased, but the size of those deals has increased as a few super regional and regional banks have combined to address core funding challenges, expand market presence, and/or pursue potential scale economies. We expect these larger acquisitions to continue as core funding continues to be a top strategic priority and the regulatory environment becomes more supportive and accommodating of large acquisitions. The caveat, of course, is if the stock market declines significantly, reducing the value of potential acquirers' currency. History has shown that successful acquirers have several common characteristics;

• A track record of successfully identifying opportunities to buy/enter new attractive markets or business lines;

• Proven management ability to identify and realize available expense synergies;

• A solid history of managing systems and organizational integrations without destroying the acquired customer franchise; and,

• Realistic pricing structures that provide near-term value without relying on heroic or unlikely expense savings.

Over the years, a few Super Regional banks have shown the ability to both buy and integrate valuable franchises that not only drive growth but, importantly, enhance shareholder value. In our view, successful acquirers include PNC Financial (PNC), M&T (MTB), Huntington (HBAN), and Citizens Financial (CFG). A couple of others that have been somewhat active over the years, but less successful, include Keycorp (KEY) and U.S. Bank (USB). We expect these banks, and a few others, to continue to explore acquisition targets as part of their core growth strategies.

Who’s On the Menu?

While identifying potential buyers is fun, determining likely sellers is more fun and, ideally, more lucrative. In our view, there are a number of factors that determine an attractive acquisition target. These include:

• Sufficient presence and share in attractive geographic markets;

• Strong and stable core customer franchises and deposit portfolios;

• A history of strong credit risk management;

• Slow to stagnant organic growth;

• Relatively high expense levels and efficiency ratios; and,

• Relatively low market valuation.

Based on these criteria, we have identified five banks that should be at the top of large banks’ draft board and ranked them based on our assessment of relative attractiveness. Names of our top 5 targets are available to our members, but the descriptions below provide some hints.

Note: The Performance Score is based on our proprietary model that assigns a score based on a broad range of performance factors.

Information not Recommendations

We do not invest in individual bank stocks or make recommendations on market timing or investment strategies. Rather, we provide information that hopefully can help inform individual investment decisions. As always, before making any investment decisions one should consult with a qualified and licensed investment advisor.

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