Mayo Says This Is a 'New Era for Bank Consolidation' (Correction)
Speakers
Mike Mayo
— Head of US Large-Cap Bank Research, Wells Fargo
Summary
Mike Mayo of Wells Fargo argues that bank consolidation is entering a new era, driven by scale and technology pressures plus a more permissive regulatory environment. He expects the number of US banks to keep shrinking and says the window for deals is now, especially before the midterms. He prefers a barbell strategy: Citigroup as his top large-cap pick and a takeover basket including BankUnited, Banc of California, and Associated Banc-Corp.
- Mike Mayo says scale and technology competition make bank consolidation necessary.
- He sees regulators approving deals faster, creating a new era for US bank M&A.
- US bank count could fall from 4,600 toward half that over the next decade.
- Mayo prefers a barbell: large Goliath banks and small takeover candidates.
- Citigroup is his number-one pick.
- BankUnited, Banc of California, and Associated Banc-Corp are named as trading below franchise value.
- He expects simpler bank regulation to support more lending and more deals.
- He says the deal window is now, before the midterms.
Ideas
New era of US bank consolidation
Scale and technology competition have made US bank consolidation necessary, while a more approving regulatory environment has opened the window. Mayo says the US still has 4,600 banks, down from 15,000, and that number could be cut in half over the next decade; regulators are approving deals faster and with more certainty. He says this is the start of a new era for bank consolidation and the window is now, especially before the midterms.
Takeover basket trades below franchise value
Mayo resurrected his 1990s bank takeover model, marking balance sheets to market instead of relying on reported book value. He says hidden book value is typically about 50% more than book value, and several banks trade below their franchise value even before any acquisition. He names BankUnited, Banc of California, and Associated Banc-Corp in his takeover basket, saying these stocks should go higher with or without an acquisition.
Citigroup is top Goliath pick
Citigroup is Mayo's number-one pick as the large-cap Goliath of his barbell strategy. The thesis is that scale and technology spending advantages will allow the largest banks to win, and Citigroup is his preferred expression of that theme.
