00:00Thomas, if we had this conversation a week ago, it would be a much different conversation, I feel
00:04like. What's the read? What's the vibe right now from the conference, just given the pain that
00:08we've been seeing across the entire industry, whether it's regional banks or bigger banks this
00:13week? Exactly. Great to be with you both. Number one is, so we have over 130 companies here,
00:21over 100 banks. And really, the fundamental theme I heard you mention, like as if it was a week ago,
00:26it would have really been on the back end of fourth quarter earnings and laying out the outlook
00:31for the year, which is all green lights on the fundamentals. The fundamentals that the banks
00:35are talking about are good loan growth, good deposit growth, excellent credit quality, lots of share
00:41repurchase, a good amount of regulatory reform on the horizon that should level the playing field with
00:48non-bank competitors. So I would say that that's been the bull case and I still think is the bull
00:54case on the stocks. And the regional banks have been outperforming the bigger banks and the market.
00:59The trouble of the last couple of days in the stocks, I think, is really twofold. One is this
01:04AI narrative has really taken on a little bit of a world of its own as it's been sweeping across
01:11the
01:11market, bringing a lot of industries into the conversation. Around that with investors, the bank
01:18management teams had primarily saying that AI is more likely to be a tailwind than a headwind.
01:24They are using it themselves to become more efficient, more productive, possibly have less
01:29headcount going forward, as well as to start to to weave it into their businesses with their clients.
01:35It's still evolving. But what I can tell you is the banking industry is accepting and engaging and
01:42incorporating AI. It's not like the banking industry isn't going to have it and someone else
01:48will. They're all going to have access to this technology. And as long as the regulatory playing
01:53field is reasonably level, I think the banks are going to be pretty good competitors in the space.
01:58But I think the view is, is that it feels like with the with the shock of the sell off,
02:03maybe it's a
02:03little bit overdone. And then I'll give one other perspective that I got from my trading desk, which is
02:08that there seems to be a risk off trade across the market because of this new AI uncertainty, probably
02:14the reason why you've had a rally in the 10 year. And you've also seen the stocks that have been
02:18the
02:18best performers to date amongst the biggest sell off or sell offs. So there's probably a bunch of
02:24profit taking happening. Right. Absolutely. An interesting perspective on some of the market action
02:28that we're seeing, especially when it comes to banks. I do want to talk a little bit about the appetite
02:33for M&A here, Tom, because I know that you said in September, I believe it was that you were
02:39of the
02:39view that when it comes to bank mergers, we're potentially just getting started here. So fast
02:44forward to February 2026. Of course, you're at your winter financial services conference. Is that still
02:50your view? And what might that wave actually look like? Yes, I believe that there will be continued
02:57consolidation. I think it's there are a couple of drivers. Number one is that's been the long term
03:02trend in the 30 years since Congress approved interstate banking. The industry has been
03:06consolidating. So so that's the long term trend. The other thing is that the prior administration
03:12really had a moratorium on bank mergers. There were three straight years where no bank above 200 billion
03:19dollars had bought another bank. That's really almost unprecedented. And now these banks are able to use
03:26the historic guidelines that were in place that are allowing them to be buyers of other banks.
03:31So there's a little bit of pent up demand to possibly use scale to sell to some of these
03:36other banks. There's also a little bit of fear that we have a presidential election a couple of
03:41years out and the policy can change again, which is a little bit of an incentive to be on your
03:46front
03:46foot to think about consolidation. And then there's another big theme that's been manifesting,
03:52which is the non-bank competitors are coming for your business, whether it's stablecoin,
03:57some of the fintechs you talked about earlier. And there's a view that you need scale to be able
04:02to invest, to be able to compete with non-banks. And I think that's an underlying theme in the
04:08industry, which is another reason why banks have been willing to consolidate.
04:11But with that potential consolidation, what areas are most ripe for M&A? And just thinking
04:16about the volatility that we've seen in the last week, how can a company go to their board and say,
04:21this valuation makes sense and these are the synergies? Well, I'll tell you, at times of,
04:26you know, whether there's economic turmoil or market turmoil, it always makes it a little bit
04:31trickier. But, you know, I think that most of these boards are thinking in longer term increments than
04:38just what's been happening more recently. And so I think that these boards are thinking in the medium
04:43and long term and that they will find a way to come up with a fair way to consider to
04:48consolidate.
04:49And so there have been a lot of tools of it in place that you can use to help come
04:53up with
04:53something that should be fair. So my sense is, as long as the economy stays steady,
04:59I think you probably still have an environment where you could see more bank consolidation.
05:05Well, Tom, I'm curious to hear what you think that might look like, whether that's some of the big
05:09banks coming out and buying up some of their smaller competitors or whether it's banks,
05:14you know, regional and small local type banks banding together, maybe forming a more formidable
05:20competitor. Yes. And I don't I don't mean to oversell this and make it seem like it's going to be
05:26a
05:26daily occurrence. So, you know, on average, three to five percent of the banks in America are involved
05:33in a merger. So we have four thousand banks ish in America. So if you put that three to five
05:39percent
05:39on it, you'll get an idea for how many bank mergers of all sizes there might be in a year.
05:45So I think, you know, Webster Financial just a little bit over a week ago agreed to be acquired by
05:51Centen there. I think there'll be somewhat of a steady pace, but I'm not sure if it's necessarily just
05:58such a flurry that there are multiple deals in a week. I think I think they'll just be a very
06:03steady pace to this.
06:05And I think it'll be of all varieties. I think you will see some of the bigger banks continuing to
06:09be a
06:10buyer. And I think it'll happen down the food chain. I think midsize banks may see the benefits of scale
06:15as well, and they may buy smaller competitors. So it could happen in the micro cap, in the mid cap,
06:21as well as in the larger cap space.
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