I just read John Maxfield’s article titled The Best Argument for Buying Regional Bank Stocks on the Motley Fool. The article reasons that:
- The Riegle-Neal Act prohibits mergers if the combined companies’ deposits exceed 10% of the total deposits nationwide, and
- systematically important financial institutions must retain an additional “SIFI buffer” of as much as 2.5% of risk-weighted assets (reducing their profit potential)
For these two reasons, the rationale is that Regional Banks are a better, more profitable alternative. John also highlights two banks worthy of consideration, BBT and PNC (two more if the comment stream is considered, NYCB and MTB). Insofar as the analysis goes, I concur.
However, with Dodd-Frank, there are additional layers of resistance when the combined entity is larger than $50B. In fact, CIT’s merger with OneWest this week was the first of this size approved post financial crisis. Pending are BB&T’s acquisition of SUSQ and MTB’s (still) of Hudson. All of John’s candidates would reside on the side of being an acquirer. Not likely as PNC is shedding some branches. Even so, the real money is in the realm of being acquired.
The key is to identify common metrics surrounding these mergers. I’ll keep you informed if and when I find them.