Episode summary
US Banking Competition is Greatest it's Been in Years, Says Mike Mayo
Bloomberg Surveillance
· · 8 min · Guests: Mike Mayo
Summary
Mike Mayo argues that US banking is entering a new merger cycle because regulation has shifted from post-crisis restraint to what he calls a once-in-a-generation deregulation. He says deals are again being approved quickly, and that bank scale matters more than ever as larger firms like JPMorgan can spend about $20 billion a year on technology while smaller banks cannot match that outlay. In his view, the result is a broad consolidation wave among banks ranked roughly 20th to 100th in size, especially after the stress and failures seen in 2023.
He says competition in US banking is now the greatest it has been since before the global financial crisis, with banks adding branches, bankers, marketing, credit card mailings, and technology. That intensity, he argues, makes it easier to justify mergers and to spread costs over a larger customer base. He also says some banks such as Fifth Third stand out as exceptions because of strong management and execution.
Mayo remains constructive on Citigroup, calling it his dominant number one pick and saying Jane Fraser is benefiting from a generational restructuring during a generational deregulation. He expects Citi to become a $200 stock in three years, with the path driven by a simpler operating structure and a move toward 1.5 times tangible book value.
Key takeaways
- Mayo says US bank regulation has shifted to a “once in a generation deregulation,” making mergers easier to complete.
- He expects the consolidation wave to focus on banks ranked 20th to 100th in size, especially undervalued regionals.
- Mayo says US banking competition is the strongest since before the global financial crisis, forcing banks to spend more on branches, technology, and marketing.
- He sees Citigroup as his top large-cap bank pick and expects it to reach $200 in three years.
- Mayo says scale is now a bigger advantage than ever because JPMorgan can spend about $20 billion a year on tech alone.
Notable quotes
“the level of competition in US banking is the greatest it's been since before the global financial crisis”
“Banks scale is more important than ever before in banking”
“I expect the number of banks be cut in half over the next year or two of the next next ten years”
“Michael Now Citigroup, I think in three years will be a $200 stock”
How the episode opens
Well, you have night and day difference in bank regulation. This is a once in a generation deregulation since the financial crisis. Regulators didn't want banks to merge so much, and now it's back to the future.
When I worked at the Fed 35 years ago, we approved bank deals in 90 days. And guess what They're back to doing. They're back to approving deals.
Is that a one off with Trump? And after President Trump, we see something different? No, I think there's a realization that the lack of bank deals was a gift to Jamie Dimon.
I mean, he just prevented a lot of happened to agree with this. But yet you, like bank mergers are needed instead of just having, you know, Goliath is winning, you know, JPMorgan, the Goliath of a Goliath. And to put this in perspective, the bank that just sold to Banco Santander, JPMorgan is going to spend about $20 billion on tech expenses this year.
That would equal 15 years. The bank that just sold total expenses. So how do you compete if you're small?
Banks scale is more important than ever before in banking. So you have the need, you have the ability with the regulation and it's happening. It's just getting started.
This is a new era for bank mergers once again, Tom, as you may recall, in the 1990s, that's when I made a name for myself with our bank franchise value model. And this morning I reintroduced that bank franchise value model to highlight hidden values at banks. You have to pay a royalty to Credit Suisse.
Paul Sweeney jump in with Mike. So, Mike, how is this merger wave going to look like in the bank space? Is it the regional banks just take, you know, regional banks merging?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us banking competition
- santander webster deal
- investment banking expansion
- eu bonus cap
- banking rulebook review
Companies and tickers mentioned
- WFC
- SAN
- MS
- GS
- C
- JPM
- Wells Fargo
- Banco Santander SA
- Webster Financial Corp.
- Morgan Stanley
- Goldman Sachs Group Inc.
- Citigroup Inc.
- JPMorgan Chase & Co.
Watch the episode
Watch “US Banking Competition is Greatest it's Been in Years, Says Mike Mayo” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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