Superbanks Are Back – And That's Great News

Editor's note: After nearly 40 years of limited dealmaking, bank consolidation is roaring back today. According to Joel Litman, chief investment officer of our corporate affiliate Altimetry, we're nearing the perfect setup for large banks. And this new wave of mergers will create opportunities for investors...

Banking consolidation is back in a big way...

In early September, PNC Financial Services (PNC) acquired Colorado-based FirstBank for $4.1 billion. The deal will give PNC 95 new branches across Colorado and Arizona.

This is one of the biggest U.S. bank acquisitions announced this year. It's only smaller than Fifth Third Bancorp's (FITB) $11 billion acquisition of Comerica and Huntington Bancshares' (HBAN) $7 billion takeover of Cadence Bank.

PNC hasn't been this aggressive since it failed to acquire First Republic Bank in 2023.

Put simply, this is a power play for PNC. It will be the No. 1 retail bank in Denver by both deposit share and branch footprint.

But this isn't just about PNC. As you'll see, this deal is part of a broader mergers-and-acquisitions (M&A) cycle. And that's great news for investors...

It has been roughly four decades since we last saw banks consolidate like this...

President Joe Biden's administration took a tough stance on bank mergers.

Regulators across the Federal Reserve, Federal Deposit Insurance Corporation, and Department of Justice grew far more skeptical of acquisitions. And they were especially skeptical of deals between big institutions.

Banks became burdened with extra regulations based on the amount of assets they controlled. That meant it wasn't worth controlling just above $100 billion or $250 billion.

Instead, many banks stayed below those thresholds... waiting for a chance to merge and surge past them.

Today, President Donald Trump is changing the banking environment. His pro-deregulation approach has paved the way for bigger banks to buy smaller ones.

But even with Trump's deregulation agenda, high interest rates have kept M&A activity depressed...

That is, until the Fed cut interest rates by 0.25 percentage points in September. Then, it cut rates another 0.25 points at its October meeting. And most folks expect another cut by the end of the year, though Fed Chair Jerome Powell says that's not guaranteed.

This New Deal Boom Will Benefit All Banks

By turbocharging the economy, the Fed will help banks succeed, too. They'll have the capital and resources to get back to dealmaking.

And Pittsburgh-based PNC is one of the leading indicators of this trend. The bank has been building toward its expansion for the past few years. In 2021, it acquired BBVA USA Bancshares for $11.6 billion in cash. The move bolstered its presence in Colorado and Texas.

This new FirstBank acquisition adds $26.8 billion in assets for PNC. And it increases PNC's market share in Colorado, plus a considerable presence in Arizona.

PNC is likely just the start...

Wells Fargo banking analyst Mike Mayo told Bloomberg that he sees a "unique window" for major consolidation in the next 12 months.

Large banks like PNC already have national platforms and strong capital positions. So they're primed to go shopping. As Mayo put it...

The shackles are being taken off of banks to act more in the interest of shareholders.

This is great news for bigger regional banks with clean books and cash to deploy. They can strive toward national scale... in a way nobody has achieved since Bank of America (BAC) went coast to coast in 2004.

It's also a blessing for smaller banks. Many are struggling with compliance costs, tech upgrades, and plenty of other pressures. They can't keep up with their bigger peers. So M&A may soon be the only viable path forward.

And most important for us... this is a great setup for investors. The banks that take advantage of this window are setting themselves up for success.

Keep an eye on the banks that announce big expansion plans in the coming months. Many of these deals are bound to pay off.

Regards,

Joel Litman

Editor's note: On Monday morning, Joel is going on camera with his most urgent recommendation of the year. While Wall Street overlooks this opportunity, some of the world's top investors are already buying in. That's why Joel is revealing the tiny stock he believes could double in a single day – before year-end – no matter what the stock market does.