Scale is the name of the game for today's banks, argued three financial services experts from Raymond James on S&P's Street Talk podcast. They said that margin pressures are increasingly pushing banks to grow through M&A, and that investors are no longer assigning the highest valuations to banks with roughly $8 billion to $9 billion in assets, which used to be the most attractive because they were seen as large enough to be competitive but small enough to avoid triggering key regulatory thresholds.
"Even with the relief in rates, we're going to struggle to see [margins] rebound in a significant way and most community and regional banks have 75% or more of their revenue driven by spread," said Bob Toma, Raymond James' managing director of financial services investment banking. "The need to get scale hasn't gone away. In fact, it's probably increased in urgency."
Another S&P article discussed U.S. bank valuations falling back below 150% of adjusted TBV last month despite the Fed's 50-bps rate cut.
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Rob Blackwell
Chief Content Officer and Head of External Affairs
IntraFi
Arlington, VA
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