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Long ago and far away, there was a bank roll up and I don't have the numbers in front of me, but there was like sixteen thousand American banks. Now there's under five thousand American banks. And someday we're going to be like Canada and have five banks. Someone that's been just absolutely legendary and following saying yes, we'll get the Mic Mayo on City Group as well. What a moonshot that is. Mayo finally gets Jane Frasier to behave yourself
and get something done here. But today, with Webster Financial of Waterbury, Connecticut, four thousand employees, they're going to be taken out by the Spanish Santander Bank. It's like a new era. You say, good to see you. You look great. I mean, you know, I look at this and you've given me. This is a new era for bank mergers. We've said that like five times. What's different now, Well.
You have night and day difference in bank regulation. This is 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. It's when I worked at the FED thirty five years ago. We approved bank deals in ninety 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 Diamond.
I mean, you just prevented a lot.
I happen to agree with this, but continue.
Yeah, like bank murders are needed instead of just having you know, Goliath is winning.
Jake Morgan is the Goliath of Goliath.
And to put this in perspective, the bank that just sold to Bank of Santander JP Morgan is going to spend about twenty billion dollars on tech expenses this year. That would equal fifteen years of the bank that just sold total expenses. So how do you compete if you're a small bank? 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 error for bank mergers once again, Thomas, you may recall in the nineteen nineties that's what 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 used to pay a royalty to credit, Sueeze Paul, so you jump into my bank.
So, Mike, how is this mergers wave going to look like in the bank space? Is it the regional banks just tight? You know, regional banks merging? Are we going to see creation of more super regionals?
What are we going?
How's that going to look for us?
I think it's going to be banks that rank you know, twentieth to one hundredth in size, and I think you'll see, you know, deals where you.
Have undervalued banks.
Remember twenty twenty three wasn't that long ago when you had some regional bank failures and several banks were looking at the abyss and their long term value is debatable, but their short term value is still very much there. So I think these kind of mid sized banks, you know, have their moment reckoning and I think this is and this is a window to where I think murders are you know, tolerated, encouraged. And that might not last forever like after the Trump presidency, but it should.
How many banks will there be in five years. I mean, am I right? We went from sixteen thousand. It's like Thomas showed that Keith buryet would know this six down to four thousand banks now right.
From fifteen thousand or forty six hundred, and I'd expect the number of banks be cut in half over the next next next ten years.
Ten years. Yeah.
I got a neighbor of mind when I commute with he postponed his retirement. He's a banker on financial services. He says, I'm going to make a lot of money in M and A the next few years. I'm not retiring. So what's driving the consolidation here? Is it that technology investment that's required You mentioned JP Morgan to some of these smaller banks. Is that what's driving some of this consolidation.
Yeah, I think the need for scale has never been more important. But you know what's happening right now.
The level of competition in US banking is the greatest it's been since before the global financial crisis. Banks are adding more branches, bankers marketing, credit card mailings, technology AI and so it's competitive out there. And so if you can leverage those calls over a larger customer base, that tends to benefit. So there's an economic reason for this happening across America.
Everyone listening to mister Mayo as they do within the banking business. The Smeed family, fabulous value investors, wonderful, wonderful contrarian track record, serious serious stuff and call Smeede emails in he says, you got to ask Mike Mayo about a bank bigger than Webster. And this gets into almost regional and super regional, something like Fifth Third of Cincinnati. They don't have four thousand employees, they got nineteen thousand employees. What is a bank like that doing right now?
Well, there's a few idiosyncratic situations where you have exceptional management, and Fifth Third is one of those banks. The CEO of Fifth Third Tim Spence, He's kind of the next generation Jamie Diamond, repackaged in a different form.
And so so far.
They started off with their acquisition of this bank called Kamerica I was headquartered in Davi. It just closed this past weekend and amazing they they are targets that they were looking for next year and now they expect to achieve in the fourth quarter of this year. And they think out of the box. They've had good technology. This merger is off to a great start, so I'd say they're the exception to the role in terms of a bank that size.
I want to start a business, I want to build a multi family residential thing, majig, is my local bank going to make a loan to me? Are they going to bank me? Or I have to go somewhere else.
No, you can get loans, I mean for a bank, it doesn't matter what size yard. It's easy to make loans. The hard part is getting paid back. Okay, In fact, a lot of good credit.
If you're a customer, you go around.
You can shop around to a lot of different banks, and sometimes these smaller banks are the ones that we'll give you the.
Better terms, looser credit.
I frankly, I think there could be more risk with these smaller banks. The reason you had national banking starting thirty years ago was for greater diversification.
Remember the rolling.
Recessions it was, you know, it was New England and in Texas and California. And guess what if you had a diversified geographic bookprint less chance of failing where it's a lot of these smaller banks. Once again, who looked at the abyss in twenty twenty three are not as diverse bied Okay.
City Group finally, with the moonshot two hundred and twenty six thousand employees trading at one times book. JP Morgan is at two and a half times book is City Group with a story you finally got it, You finally got your big pop in City Group. Does it keep on going and improve that book value?
You say, finally, Yeah, it was the best performing big bank last year. It's filling my dominant number one pick.
So I have a barbell strategy with my weightlifting theme too. We have the takeover target picks banks like Bank United and Bank of California and Associated But I also have City Group on the other side. And Jane Fraser is turning this company around. And if there's one point for those who cover all industries, how many restructuring stories out there are there that get seven percent revenue growth? That's
what they got last year even while they're restructuring. This is a generational restructuring at a time of generational deregulation.
City Group is the beneficial for.
Their distinction be there'll be international more than the other great American banks. What's what's the pixie does that's going to drive her forward.
See you're asking that question the way you would have for the last fifty years.
Why you could be like a fossil. I mean, let's just wouldn't have ask it that way, I understand. So what's the new new?
The new new is they've only had eight quarters of this new structure. For half a century they were organized is this global matrix mishmash structure mishmash. And now they have five lines of business which I say simply payments, banking, markets, cards, and wealth, with the CEO in charge of each of those five, each with a line of business target, each with and they are responsible and they all report to the CEO of That's simple but powerful.
Twenty second, single, single best buy right now, Michael.
Mayo City Group, I think in three years will be a two hundred dollars stock that's not quite a double debt to a long way. And by the way, there's no analytical gymnastics to get that valuation. They just go to one and a half times to handle book value.
Michael Maniel, thank you so much. On the new era of bank merges. Here we saw that with Webster Financial Waterbury, Connecticut,