Two regional bank stocks that may potentially be taken over by acquirers during the term of the Trump Administration.
The hunt for dominance in banking: Small fish facing the big sharks
The world of banking is shaking things up, with the big four — JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup — firmly entrenched as market leaders. Despite the U.S. boasting over 4,500 banks, these four collectively control trillions in assets. Smaller banks will continue merging to gain scale, but it's the large regional banking market, consisting of banks with assets between $75 billion and $700 billion, that might see significant transformation.
The relaxed approach towards mergers and acquisitions under President Trump's administration has opened up new possibilities for these large regional players looking to take on the big four. If they truly want to hold their ground, they'll need to get bigger, and that means acquisitions.
Two banks that could find themselves in the crosshairs are Comerica and KeyCorp. Let's delve into why these banks could be on the menu for mergers in the coming years.
1. Comerica: The 'In-Between' Bank
With around $78 billion in assets and a presence in attractive markets like Texas and the Southeast, Comerica is an awkward size for a regional bank today. It's too big to be considered a local bank, but not big enough to compete with the big leagues. The bank previously operated under a $100 billion threshold considered too big to fail, but regulations and capital requirements for banks around this size are regularly under review.
At the end of the first quarter of 2025, Comerica decided not to extend its banking relationship with the U.S. Treasury Department, which provided it with $3 billion in noninterest-bearing deposits. This decision could partly explain its relatively low valuation compared to its peers.
A bank's price-to-tangible book value (TBV) is a crucial factor to consider during acquisitions, with a higher value indicating a more valuable bank stock currency. When looking at the price-to-TBV of several major U.S. regional banks, Comerica sits at the bottom of the group. While this doesn't necessarily mean an automatic acquisition, it does make a potential merger more attractive for a buyer. Remember, banks are sold, not bought — Comerica will need to express interest if they want to sell.
Interestingly, CEO Curtis Farmer has a change-in-control agreement with the bank that could earn him a payout of over $35 million if the bank changes hands.
2. KeyCorp: Building the Arsenal
KeyCorp is another bank that could catch the eye of buyers. The bank's price-to-TBV is also on the lower end, but its strong capital light, fee-based businesses, such as investment banking and trust, make it an appealing target for banks looking to beef up their investment banking capabilities.
KeyCorp also sold a 14.9% stake to Canadian-based lender Scotiabank for $2.8 billion last year to gain more capital flexibility. This move helped restructure its bond portfolio, which had fallen underwater amid the higher-interest rate environment during the past few years.
The agreement between KeyCorp and Scotiabank only allows Scotiabank to increase its stake in KeyCorp to 19.9% for the next five years, but some analysts speculate that a full acquisition could be on the horizon. However, this wouldn't prevent another bank from buying KeyCorp if the bank were to express interest in selling, with CEO Chris Gorman poised for a lucrative payout of nearly $35.7 million under a change-in-control agreement.
As the tides turn in favor of consolidation, it's essential to keep an eye on these and other regional banks that could soon find themselves in the crosshairs. Stay tuned for more updates on the shifting landscape of the banking sector.
- In the midst of consolidation in the banking sector, smaller banks such as Comerica and KeyCorp might be targetted for mergers, especially considering their relatively low valuations and attractive assets.
- To remain competitive, Comerica and KeyCorp may need to consider financing acquisitions to grow their size and investment banking capabilities, appealing to larger regional players and enhancing their position in the industry.
