Bank Q1 Cheat Sheet: Lower Earnings, More Buyouts
In a new report, Deutsche Bank analyst Matt O’Conner discusses the implications that the FOMC decision to delay a potential interest rate hike will have on bank stocks. According to O’Conner, the banking industry will likely be in for some major consolidation in coming years.
“Given a lower-for-longer interest rate environment seems increasingly likely, this could potentially lead to a pickup in bank deals as more banks look at M&A as an alternative to drive growth,” O’Conner explains.
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Deutsche Bank has a scoring system in which it ranks 75 banks based on their likelihood of a takeover. The ranking considers a number of factors, including the age of the CEO, price/TBV, 3-year stock performance, projected ROE, securities/assets, efficiency ratio and revenue.
According to Deutsche Bank’s system, Comerica Incorporated (NYSE: CMA) has replaced Zions Bancorporation (NASDAQ: ZION) as the most likely buyout candidate with greater than $50 billion in assets. In addition, Hancock Holding Company (NASDAQ: HBHC) is the top target with $20-50 billion in assets, and Trustmark Corp (NASDAQ: TRMK) is the top buyout candidate among banks with $5-20 billion in assets.
Finally, with Q1 bank earnings season set to kick off in about a month, Deutsche Bank slightly lowered EPS estimates for Citigroup Inc (NYSE: C), KeyCorp (NYSE: KEY) and Regions Financial Corp (NYSE: RF) to $1.02, $0.23 and $0.16, respectively.
Disclosure: the author holds no position in the stocks mentioned.
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