1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,000 --> 00:00:10,800 Speaker 2: Long ago and far away, there was a bank roll 3 00:00:10,880 --> 00:00:12,520 Speaker 2: up and I don't have the numbers in front of me, 4 00:00:12,600 --> 00:00:16,599 Speaker 2: but there was like sixteen thousand American banks. Now there's 5 00:00:16,680 --> 00:00:20,640 Speaker 2: under five thousand American banks. And someday we're going to 6 00:00:20,720 --> 00:00:23,200 Speaker 2: be like Canada and have five banks. Someone that's been 7 00:00:23,800 --> 00:00:26,680 Speaker 2: just absolutely legendary and following saying yes, we'll get the 8 00:00:26,720 --> 00:00:30,000 Speaker 2: Mic Mayo on City Group as well. What a moonshot 9 00:00:30,440 --> 00:00:33,159 Speaker 2: that is. Mayo finally gets Jane Frasier to behave yourself 10 00:00:33,159 --> 00:00:38,280 Speaker 2: and get something done here. But today, with Webster Financial 11 00:00:38,320 --> 00:00:42,600 Speaker 2: of Waterbury, Connecticut, four thousand employees, they're going to be 12 00:00:42,640 --> 00:00:45,760 Speaker 2: taken out by the Spanish Santander Bank. It's like a 13 00:00:45,800 --> 00:00:48,520 Speaker 2: new era. You say, good to see you. You look great. 14 00:00:48,680 --> 00:00:51,360 Speaker 2: I mean, you know, I look at this and you've 15 00:00:51,360 --> 00:00:53,680 Speaker 2: given me. This is a new era for bank mergers. 16 00:00:53,840 --> 00:00:58,000 Speaker 2: We've said that like five times. What's different now, Well. 17 00:00:57,960 --> 00:01:02,680 Speaker 1: You have night and day difference in bank regulation. This 18 00:01:02,720 --> 00:01:06,959 Speaker 1: is once in a generation deregulation. Since the Financial crisis, 19 00:01:07,360 --> 00:01:10,760 Speaker 1: regulators didn't want banks to merge so much, and now 20 00:01:10,920 --> 00:01:13,039 Speaker 1: it's back to the future. It's when I worked at 21 00:01:13,040 --> 00:01:15,800 Speaker 1: the FED thirty five years ago. We approved bank deals 22 00:01:15,840 --> 00:01:18,280 Speaker 1: in ninety days and guess what they're back to doing. 23 00:01:18,440 --> 00:01:19,679 Speaker 1: They're back to approving deals. 24 00:01:19,800 --> 00:01:22,000 Speaker 2: Is that a one off with Trump? And after President 25 00:01:22,120 --> 00:01:24,000 Speaker 2: Trump we see something different. No. 26 00:01:24,280 --> 00:01:27,039 Speaker 1: I think there's a realization that the lack of bank 27 00:01:27,160 --> 00:01:29,440 Speaker 1: deals was a gift to Jamie Diamond. 28 00:01:29,720 --> 00:01:31,200 Speaker 3: I mean, you just prevented a lot. 29 00:01:31,280 --> 00:01:33,640 Speaker 2: I happen to agree with this, but continue. 30 00:01:33,280 --> 00:01:37,120 Speaker 1: Yeah, like bank murders are needed instead of just having 31 00:01:37,200 --> 00:01:38,360 Speaker 1: you know, Goliath is winning. 32 00:01:39,080 --> 00:01:41,000 Speaker 3: Jake Morgan is the Goliath of Goliath. 33 00:01:41,160 --> 00:01:43,280 Speaker 1: And to put this in perspective, the bank that just 34 00:01:43,319 --> 00:01:46,840 Speaker 1: sold to Bank of Santander JP Morgan is going to 35 00:01:46,840 --> 00:01:50,280 Speaker 1: spend about twenty billion dollars on tech expenses this year. 36 00:01:50,840 --> 00:01:53,680 Speaker 1: That would equal fifteen years of the bank that just 37 00:01:53,760 --> 00:01:57,600 Speaker 1: sold total expenses. So how do you compete if you're 38 00:01:57,600 --> 00:02:00,800 Speaker 1: a small bank? Scale is more important than ever before 39 00:02:00,920 --> 00:02:02,880 Speaker 1: in banking. So you have the need, you have the 40 00:02:02,920 --> 00:02:07,000 Speaker 1: ability with the regulation, and it's happening, it's just getting started. 41 00:02:07,160 --> 00:02:10,400 Speaker 1: This is a new error for bank mergers once again, Thomas, 42 00:02:10,720 --> 00:02:12,880 Speaker 1: you may recall in the nineteen nineties that's what I 43 00:02:12,919 --> 00:02:16,359 Speaker 1: made a name for myself with our bank franchise value model, 44 00:02:16,600 --> 00:02:20,440 Speaker 1: and this morning I reintroduced that bank franchise value model 45 00:02:20,600 --> 00:02:23,400 Speaker 1: to highlight hidden values at banks. 46 00:02:23,480 --> 00:02:26,880 Speaker 2: You used to pay a royalty to credit, Sueeze Paul, 47 00:02:26,960 --> 00:02:28,359 Speaker 2: so you jump into my bank. 48 00:02:28,480 --> 00:02:32,600 Speaker 4: So, Mike, how is this mergers wave going to look 49 00:02:32,680 --> 00:02:35,840 Speaker 4: like in the bank space? Is it the regional banks 50 00:02:35,840 --> 00:02:38,600 Speaker 4: just tight? You know, regional banks merging? Are we going 51 00:02:38,639 --> 00:02:40,960 Speaker 4: to see creation of more super regionals? 52 00:02:41,120 --> 00:02:41,639 Speaker 2: What are we going? 53 00:02:41,639 --> 00:02:42,720 Speaker 3: How's that going to look for us? 54 00:02:43,000 --> 00:02:45,200 Speaker 1: I think it's going to be banks that rank you know, 55 00:02:45,280 --> 00:02:48,760 Speaker 1: twentieth to one hundredth in size, and I think you'll see, 56 00:02:48,919 --> 00:02:50,919 Speaker 1: you know, deals where you. 57 00:02:50,919 --> 00:02:52,280 Speaker 3: Have undervalued banks. 58 00:02:52,360 --> 00:02:54,959 Speaker 1: Remember twenty twenty three wasn't that long ago when you 59 00:02:55,160 --> 00:02:58,320 Speaker 1: had some regional bank failures and several banks were looking 60 00:02:58,360 --> 00:03:03,200 Speaker 1: at the abyss and their long term value is debatable, 61 00:03:03,760 --> 00:03:06,080 Speaker 1: but their short term value is still very much there. 62 00:03:06,520 --> 00:03:11,200 Speaker 1: So I think these kind of mid sized banks, you know, 63 00:03:11,400 --> 00:03:14,280 Speaker 1: have their moment reckoning and I think this is and 64 00:03:14,320 --> 00:03:16,919 Speaker 1: this is a window to where I think murders are 65 00:03:17,360 --> 00:03:21,280 Speaker 1: you know, tolerated, encouraged. And that might not last forever 66 00:03:21,480 --> 00:03:24,200 Speaker 1: like after the Trump presidency, but it should. 67 00:03:24,400 --> 00:03:27,000 Speaker 2: How many banks will there be in five years. I mean, 68 00:03:27,160 --> 00:03:30,200 Speaker 2: am I right? We went from sixteen thousand. It's like 69 00:03:30,320 --> 00:03:33,200 Speaker 2: Thomas showed that Keith buryet would know this six down 70 00:03:33,240 --> 00:03:34,840 Speaker 2: to four thousand banks now right. 71 00:03:35,320 --> 00:03:38,280 Speaker 1: From fifteen thousand or forty six hundred, and I'd expect 72 00:03:38,280 --> 00:03:40,240 Speaker 1: the number of banks be cut in half over the 73 00:03:40,240 --> 00:03:43,520 Speaker 1: next next next ten years. 74 00:03:43,240 --> 00:03:43,880 Speaker 2: Ten years. Yeah. 75 00:03:43,880 --> 00:03:45,280 Speaker 4: I got a neighbor of mind when I commute with 76 00:03:45,760 --> 00:03:49,320 Speaker 4: he postponed his retirement. He's a banker on financial services. 77 00:03:49,400 --> 00:03:50,600 Speaker 4: He says, I'm going to make a lot of money 78 00:03:50,600 --> 00:03:52,400 Speaker 4: in M and A the next few years. I'm not retiring. 79 00:03:53,320 --> 00:03:57,720 Speaker 4: So what's driving the consolidation here? Is it that technology 80 00:03:57,760 --> 00:04:00,400 Speaker 4: investment that's required You mentioned JP Morgan to some of 81 00:04:00,400 --> 00:04:03,120 Speaker 4: these smaller banks. Is that what's driving some of this consolidation. 82 00:04:03,680 --> 00:04:06,360 Speaker 3: Yeah, I think the need for scale has never been 83 00:04:06,360 --> 00:04:08,440 Speaker 3: more important. But you know what's happening right now. 84 00:04:08,960 --> 00:04:12,960 Speaker 1: The level of competition in US banking is the greatest 85 00:04:12,960 --> 00:04:16,960 Speaker 1: it's been since before the global financial crisis. Banks are 86 00:04:16,960 --> 00:04:24,840 Speaker 1: adding more branches, bankers marketing, credit card mailings, technology AI 87 00:04:25,760 --> 00:04:28,240 Speaker 1: and so it's competitive out there. And so if you 88 00:04:28,279 --> 00:04:31,479 Speaker 1: can leverage those calls over a larger customer base, that 89 00:04:31,600 --> 00:04:34,560 Speaker 1: tends to benefit. So there's an economic reason for this 90 00:04:34,640 --> 00:04:36,320 Speaker 1: happening across America. 91 00:04:36,600 --> 00:04:39,599 Speaker 2: Everyone listening to mister Mayo as they do within the 92 00:04:39,640 --> 00:04:45,000 Speaker 2: banking business. The Smeed family, fabulous value investors, wonderful, wonderful 93 00:04:45,040 --> 00:04:50,600 Speaker 2: contrarian track record, serious serious stuff and call Smeede emails 94 00:04:50,640 --> 00:04:53,039 Speaker 2: in he says, you got to ask Mike Mayo about 95 00:04:53,040 --> 00:04:55,520 Speaker 2: a bank bigger than Webster. And this gets into almost 96 00:04:55,600 --> 00:05:00,680 Speaker 2: regional and super regional, something like Fifth Third of Cincinnati. 97 00:05:01,200 --> 00:05:04,640 Speaker 2: They don't have four thousand employees, they got nineteen thousand employees. 98 00:05:04,680 --> 00:05:07,159 Speaker 2: What is a bank like that doing right now? 99 00:05:07,360 --> 00:05:12,599 Speaker 1: Well, there's a few idiosyncratic situations where you have exceptional management, 100 00:05:13,120 --> 00:05:16,360 Speaker 1: and Fifth Third is one of those banks. The CEO 101 00:05:16,400 --> 00:05:19,320 Speaker 1: of Fifth Third Tim Spence, He's kind of the next 102 00:05:19,320 --> 00:05:22,839 Speaker 1: generation Jamie Diamond, repackaged in a different form. 103 00:05:23,200 --> 00:05:24,520 Speaker 3: And so so far. 104 00:05:24,680 --> 00:05:27,560 Speaker 1: They started off with their acquisition of this bank called 105 00:05:27,640 --> 00:05:31,080 Speaker 1: Kamerica I was headquartered in Davi. It just closed this 106 00:05:31,160 --> 00:05:35,320 Speaker 1: past weekend and amazing they they are targets that they 107 00:05:35,640 --> 00:05:37,680 Speaker 1: were looking for next year and now they expect to 108 00:05:37,720 --> 00:05:41,000 Speaker 1: achieve in the fourth quarter of this year. And they 109 00:05:41,040 --> 00:05:44,200 Speaker 1: think out of the box. They've had good technology. This 110 00:05:44,360 --> 00:05:46,880 Speaker 1: merger is off to a great start, so I'd say 111 00:05:46,880 --> 00:05:48,680 Speaker 1: they're the exception to the role in terms of a 112 00:05:48,720 --> 00:05:49,919 Speaker 1: bank that size. 113 00:05:50,880 --> 00:05:53,119 Speaker 4: I want to start a business, I want to build 114 00:05:53,160 --> 00:05:57,159 Speaker 4: a multi family residential thing, majig, is my local bank 115 00:05:57,200 --> 00:05:58,920 Speaker 4: going to make a loan to me? Are they going 116 00:05:58,960 --> 00:06:00,839 Speaker 4: to bank me? Or I have to go somewhere else. 117 00:06:01,160 --> 00:06:03,719 Speaker 1: No, you can get loans, I mean for a bank, 118 00:06:03,720 --> 00:06:06,120 Speaker 1: it doesn't matter what size yard. It's easy to make loans. 119 00:06:06,200 --> 00:06:09,440 Speaker 1: The hard part is getting paid back. Okay, In fact, 120 00:06:09,480 --> 00:06:10,320 Speaker 1: a lot of good credit. 121 00:06:10,400 --> 00:06:12,119 Speaker 3: If you're a customer, you go around. 122 00:06:12,160 --> 00:06:14,200 Speaker 1: You can shop around to a lot of different banks, 123 00:06:14,200 --> 00:06:16,840 Speaker 1: and sometimes these smaller banks are the ones that we'll 124 00:06:16,880 --> 00:06:17,240 Speaker 1: give you the. 125 00:06:17,760 --> 00:06:19,400 Speaker 3: Better terms, looser credit. 126 00:06:19,560 --> 00:06:22,000 Speaker 1: I frankly, I think there could be more risk with 127 00:06:22,040 --> 00:06:25,760 Speaker 1: these smaller banks. The reason you had national banking starting 128 00:06:25,760 --> 00:06:28,200 Speaker 1: thirty years ago was for greater diversification. 129 00:06:28,320 --> 00:06:29,480 Speaker 3: Remember the rolling. 130 00:06:29,279 --> 00:06:31,640 Speaker 1: Recessions it was, you know, it was New England and 131 00:06:31,640 --> 00:06:34,120 Speaker 1: in Texas and California. And guess what if you had 132 00:06:34,120 --> 00:06:37,600 Speaker 1: a diversified geographic bookprint less chance of failing where it's 133 00:06:37,600 --> 00:06:39,880 Speaker 1: a lot of these smaller banks. Once again, who looked 134 00:06:39,920 --> 00:06:43,360 Speaker 1: at the abyss in twenty twenty three are not as 135 00:06:43,360 --> 00:06:44,240 Speaker 1: diverse bied Okay. 136 00:06:44,279 --> 00:06:46,679 Speaker 2: City Group finally, with the moonshot two hundred and twenty 137 00:06:46,720 --> 00:06:50,440 Speaker 2: six thousand employees trading at one times book. JP Morgan 138 00:06:50,520 --> 00:06:52,400 Speaker 2: is at two and a half times book is City 139 00:06:52,400 --> 00:06:54,680 Speaker 2: Group with a story you finally got it, You finally 140 00:06:54,680 --> 00:06:57,040 Speaker 2: got your big pop in City Group. Does it keep 141 00:06:57,080 --> 00:06:59,040 Speaker 2: on going and improve that book value? 142 00:06:59,200 --> 00:07:02,120 Speaker 3: You say, finally, Yeah, it was the best performing big 143 00:07:02,160 --> 00:07:05,240 Speaker 3: bank last year. It's filling my dominant number one pick. 144 00:07:05,320 --> 00:07:08,279 Speaker 1: So I have a barbell strategy with my weightlifting theme too. 145 00:07:08,520 --> 00:07:12,520 Speaker 1: We have the takeover target picks banks like Bank United 146 00:07:12,560 --> 00:07:15,040 Speaker 1: and Bank of California and Associated But I also have 147 00:07:15,120 --> 00:07:17,920 Speaker 1: City Group on the other side. And Jane Fraser is 148 00:07:17,960 --> 00:07:20,280 Speaker 1: turning this company around. And if there's one point for 149 00:07:20,360 --> 00:07:24,120 Speaker 1: those who cover all industries, how many restructuring stories out 150 00:07:24,160 --> 00:07:27,600 Speaker 1: there are there that get seven percent revenue growth? That's 151 00:07:27,640 --> 00:07:30,520 Speaker 1: what they got last year even while they're restructuring. This 152 00:07:30,680 --> 00:07:34,560 Speaker 1: is a generational restructuring at a time of generational deregulation. 153 00:07:35,000 --> 00:07:36,280 Speaker 3: City Group is the beneficial for. 154 00:07:36,360 --> 00:07:39,320 Speaker 2: Their distinction be there'll be international more than the other 155 00:07:39,440 --> 00:07:42,720 Speaker 2: great American banks. What's what's the pixie does that's going 156 00:07:42,800 --> 00:07:43,720 Speaker 2: to drive her forward. 157 00:07:43,800 --> 00:07:46,120 Speaker 1: See you're asking that question the way you would have 158 00:07:46,200 --> 00:07:47,360 Speaker 1: for the last fifty years. 159 00:07:47,600 --> 00:07:49,880 Speaker 2: Why you could be like a fossil. I mean, let's 160 00:07:49,880 --> 00:07:52,560 Speaker 2: just wouldn't have ask it that way, I understand. So 161 00:07:52,600 --> 00:07:53,400 Speaker 2: what's the new new? 162 00:07:54,040 --> 00:07:56,840 Speaker 1: The new new is they've only had eight quarters of 163 00:07:56,880 --> 00:07:59,960 Speaker 1: this new structure. For half a century they were organized 164 00:08:00,120 --> 00:08:05,280 Speaker 1: is this global matrix mishmash structure mishmash. And now they 165 00:08:05,320 --> 00:08:10,520 Speaker 1: have five lines of business which I say simply payments, banking, markets, cards, 166 00:08:10,560 --> 00:08:12,960 Speaker 1: and wealth, with the CEO in charge of each of 167 00:08:12,960 --> 00:08:16,440 Speaker 1: those five, each with a line of business target, each 168 00:08:16,480 --> 00:08:18,280 Speaker 1: with and they are responsible and they all report to 169 00:08:18,280 --> 00:08:20,200 Speaker 1: the CEO of That's simple but powerful. 170 00:08:20,280 --> 00:08:23,440 Speaker 2: Twenty second, single, single best buy right now, Michael. 171 00:08:23,120 --> 00:08:26,240 Speaker 1: Mayo City Group, I think in three years will be 172 00:08:26,240 --> 00:08:28,480 Speaker 1: a two hundred dollars stock that's not quite a double 173 00:08:28,560 --> 00:08:30,120 Speaker 1: debt to a long way. And by the way, there's 174 00:08:30,600 --> 00:08:33,760 Speaker 1: no analytical gymnastics to get that valuation. They just go 175 00:08:33,840 --> 00:08:36,199 Speaker 1: to one and a half times to handle book value. 176 00:08:36,280 --> 00:08:38,199 Speaker 2: Michael Maniel, thank you so much. On the new era 177 00:08:38,320 --> 00:08:42,280 Speaker 2: of bank merges. Here we saw that with Webster Financial Waterbury, Connecticut,