Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Long ago and far away, there was a bank roll
Speaker 2: up and I don't have the numbers in front of me,
Speaker 2: but there was like sixteen thousand American banks. Now there's
Speaker 2: under five thousand American banks. And someday we're going to
Speaker 2: be like Canada and have five banks. Someone that's been
Speaker 2: just absolutely legendary and following saying yes, we'll get the
Speaker 2: Mic Mayo on City Group as well. What a moonshot
Speaker 2: that is. Mayo finally gets Jane Frasier to behave yourself
Speaker 2: and get something done here. But today, with Webster Financial
Speaker 2: of Waterbury, Connecticut, four thousand employees, they're going to be
Speaker 2: taken out by the Spanish Santander Bank. It's like a
Speaker 2: new era. You say, good to see you. You look great.
Speaker 2: I mean, you know, I look at this and you've
Speaker 2: given me. This is a new era for bank mergers.
Speaker 2: We've said that like five times. What's different now, Well.
Speaker 1: You have night and day difference in bank regulation. This
Speaker 1: is once in a generation deregulation. Since the Financial crisis,
Speaker 1: regulators didn't want banks to merge so much, and now
Speaker 1: it's back to the future. It's when I worked at
Speaker 1: the FED thirty five years ago. We approved bank deals
Speaker 1: in ninety days and guess what they're back to doing.
Speaker 1: They're back to approving deals.
Speaker 2: Is that a one off with Trump? And after President
Speaker 2: Trump we see something different. No.
Speaker 1: I think there's a realization that the lack of bank
Speaker 1: deals was a gift to Jamie Diamond.
Speaker 3: I mean, you just prevented a lot.
Speaker 2: I happen to agree with this, but continue.
Speaker 1: Yeah, like bank murders are needed instead of just having
Speaker 1: you know, Goliath is winning.
Speaker 3: Jake Morgan is the Goliath of Goliath.
Speaker 1: And to put this in perspective, the bank that just
Speaker 1: sold to Bank of Santander JP Morgan is going to
Speaker 1: spend about twenty billion dollars on tech expenses this year.
Speaker 1: That would equal fifteen years of the bank that just
Speaker 1: sold total expenses. So how do you compete if you're
Speaker 1: a small bank? Scale is more important than ever before
Speaker 1: in banking. So you have the need, you have the
Speaker 1: ability with the regulation, and it's happening, it's just getting started.
Speaker 1: This is a new error for bank mergers once again, Thomas,
Speaker 1: you may recall in the nineteen nineties that's what I
Speaker 1: made a name for myself with our bank franchise value model,
Speaker 1: and this morning I reintroduced that bank franchise value model
Speaker 1: to highlight hidden values at banks.
Speaker 2: You used to pay a royalty to credit, Sueeze Paul,
Speaker 2: so you jump into my bank.
Speaker 4: So, Mike, how is this mergers wave going to look
Speaker 4: like in the bank space? Is it the regional banks
Speaker 4: just tight? You know, regional banks merging? Are we going
Speaker 4: to see creation of more super regionals?
Speaker 2: What are we going?
Speaker 3: How's that going to look for us?
Speaker 1: I think it's going to be banks that rank you know,
Speaker 1: twentieth to one hundredth in size, and I think you'll see,
Speaker 1: you know, deals where you.
Speaker 3: Have undervalued banks.
Speaker 1: Remember twenty twenty three wasn't that long ago when you
Speaker 1: had some regional bank failures and several banks were looking
Speaker 1: at the abyss and their long term value is debatable,
Speaker 1: but their short term value is still very much there.
Speaker 1: So I think these kind of mid sized banks, you know,
Speaker 1: have their moment reckoning and I think this is and
Speaker 1: this is a window to where I think murders are
Speaker 1: you know, tolerated, encouraged. And that might not last forever
Speaker 1: like after the Trump presidency, but it should.
Speaker 2: How many banks will there be in five years. I mean,
Speaker 2: am I right? We went from sixteen thousand. It's like
Speaker 2: Thomas showed that Keith buryet would know this six down
Speaker 2: to four thousand banks now right.
Speaker 1: From fifteen thousand or forty six hundred, and I'd expect
Speaker 1: the number of banks be cut in half over the
Speaker 1: next next next ten years.
Speaker 2: Ten years. Yeah.
Speaker 4: I got a neighbor of mind when I commute with
Speaker 4: he postponed his retirement. He's a banker on financial services.
Speaker 4: He says, I'm going to make a lot of money
Speaker 4: in M and A the next few years. I'm not retiring.
Speaker 4: So what's driving the consolidation here? Is it that technology
Speaker 4: investment that's required You mentioned JP Morgan to some of
Speaker 4: these smaller banks. Is that what's driving some of this consolidation.
Speaker 3: Yeah, I think the need for scale has never been
Speaker 3: more important. But you know what's happening right now.
Speaker 1: The level of competition in US banking is the greatest
Speaker 1: it's been since before the global financial crisis. Banks are
Speaker 1: adding more branches, bankers marketing, credit card mailings, technology AI
Speaker 1: and so it's competitive out there. And so if you
Speaker 1: can leverage those calls over a larger customer base, that
Speaker 1: tends to benefit. So there's an economic reason for this
Speaker 1: happening across America.
Speaker 2: Everyone listening to mister Mayo as they do within the
Speaker 2: banking business. The Smeed family, fabulous value investors, wonderful, wonderful
Speaker 2: contrarian track record, serious serious stuff and call Smeede emails
Speaker 2: in he says, you got to ask Mike Mayo about
Speaker 2: a bank bigger than Webster. And this gets into almost
Speaker 2: regional and super regional, something like Fifth Third of Cincinnati.
Speaker 2: They don't have four thousand employees, they got nineteen thousand employees.
Speaker 2: What is a bank like that doing right now?
Speaker 1: Well, there's a few idiosyncratic situations where you have exceptional management,
Speaker 1: and Fifth Third is one of those banks. The CEO
Speaker 1: of Fifth Third Tim Spence, He's kind of the next
Speaker 1: generation Jamie Diamond, repackaged in a different form.
Speaker 3: And so so far.
Speaker 1: They started off with their acquisition of this bank called
Speaker 1: Kamerica I was headquartered in Davi. It just closed this
Speaker 1: past weekend and amazing they they are targets that they
Speaker 1: were looking for next year and now they expect to
Speaker 1: achieve in the fourth quarter of this year. And they
Speaker 1: think out of the box. They've had good technology. This
Speaker 1: merger is off to a great start, so I'd say
Speaker 1: they're the exception to the role in terms of a
Speaker 1: bank that size.
Speaker 4: I want to start a business, I want to build
Speaker 4: a multi family residential thing, majig, is my local bank
Speaker 4: going to make a loan to me? Are they going
Speaker 4: to bank me? Or I have to go somewhere else.
Speaker 1: No, you can get loans, I mean for a bank,
Speaker 1: it doesn't matter what size yard. It's easy to make loans.
Speaker 1: The hard part is getting paid back. Okay, In fact,
Speaker 1: a lot of good credit.
Speaker 3: If you're a customer, you go around.
Speaker 1: You can shop around to a lot of different banks,
Speaker 1: and sometimes these smaller banks are the ones that we'll
Speaker 1: give you the.
Speaker 3: Better terms, looser credit.
Speaker 1: I frankly, I think there could be more risk with
Speaker 1: these smaller banks. The reason you had national banking starting
Speaker 1: thirty years ago was for greater diversification.
Speaker 3: Remember the rolling.
Speaker 1: Recessions it was, you know, it was New England and
Speaker 1: in Texas and California. And guess what if you had
Speaker 1: a diversified geographic bookprint less chance of failing where it's
Speaker 1: a lot of these smaller banks. Once again, who looked
Speaker 1: at the abyss in twenty twenty three are not as
Speaker 1: diverse bied Okay.
Speaker 2: City Group finally, with the moonshot two hundred and twenty
Speaker 2: six thousand employees trading at one times book. JP Morgan
Speaker 2: is at two and a half times book is City
Speaker 2: Group with a story you finally got it, You finally
Speaker 2: got your big pop in City Group. Does it keep
Speaker 2: on going and improve that book value?
Speaker 3: You say, finally, Yeah, it was the best performing big
Speaker 3: bank last year. It's filling my dominant number one pick.
Speaker 1: So I have a barbell strategy with my weightlifting theme too.
Speaker 1: We have the takeover target picks banks like Bank United
Speaker 1: and Bank of California and Associated But I also have
Speaker 1: City Group on the other side. And Jane Fraser is
Speaker 1: turning this company around. And if there's one point for
Speaker 1: those who cover all industries, how many restructuring stories out
Speaker 1: there are there that get seven percent revenue growth? That's
Speaker 1: what they got last year even while they're restructuring. This
Speaker 1: is a generational restructuring at a time of generational deregulation.
Speaker 3: City Group is the beneficial for.
Speaker 2: Their distinction be there'll be international more than the other
Speaker 2: great American banks. What's what's the pixie does that's going
Speaker 2: to drive her forward.
Speaker 1: See you're asking that question the way you would have
Speaker 1: for the last fifty years.
Speaker 2: Why you could be like a fossil. I mean, let's
Speaker 2: just wouldn't have ask it that way, I understand. So
Speaker 2: what's the new new?
Speaker 1: The new new is they've only had eight quarters of
Speaker 1: this new structure. For half a century they were organized
Speaker 1: is this global matrix mishmash structure mishmash. And now they
Speaker 1: have five lines of business which I say simply payments, banking, markets, cards,
Speaker 1: and wealth, with the CEO in charge of each of
Speaker 1: those five, each with a line of business target, each
Speaker 1: with and they are responsible and they all report to
Speaker 1: the CEO of That's simple but powerful.
Speaker 2: Twenty second, single, single best buy right now, Michael.
Speaker 1: Mayo City Group, I think in three years will be
Speaker 1: a two hundred dollars stock that's not quite a double
Speaker 1: debt to a long way. And by the way, there's
Speaker 1: no analytical gymnastics to get that valuation. They just go
Speaker 1: to one and a half times to handle book value.
Speaker 2: Michael Maniel, thank you so much. On the new era
Speaker 2: of bank merges. Here we saw that with Webster Financial Waterbury, Connecticut,