00:00For this sector, where are the most attractive targets right now?
00:03Yeah, I think, as we just heard, we've seen an uptick in bank M&A activity,
00:08but I would characterize the environment as normalizing.
00:12You know, there was very little M&A activity under the previous administration.
00:16It was taking a year to two years to get things approved, and that's come in quite a bit.
00:22You know, it's a fraction of that time now.
00:25For Key Corp specifically, it's not on our priority list,
00:29but in terms of other depository deals.
00:32But we're very active in terms of just tuck-in knowledge-based businesses.
00:37We've bought some investment banks and done that very successfully.
00:41I think more broadly, lower rates are going to help fuel more consolidation,
00:47whether it's in the insurance space, fintech, and we are seeing that.
00:51I'd be interested to get your take on it.
00:53I mean, is it the big deals or is it these more kind of like tuck-in things?
00:56Where in the space is the most attractive now?
00:58You know, our view is that historically the big deals haven't really done the returns
01:02that everybody expected of them.
01:04So where the world is heading is what we define as precision M&A,
01:08which is about tucking transactions that add capabilities
01:11or extend the business into new business segments
01:14where there are attractive returns like wealth management,
01:17or really filling the gaps in your portfolio,
01:20certain markets where you are underrepresented
01:22or you don't have the right scale in certain other markets.
01:25Angela, I'd love to get your take on this,
01:26because obviously you're coming from a different part of the world,
01:28more startups, that VC type of nature.
01:31What would be your pitch to the investment committee?
01:33Where do you think is most attractive?
01:36Yeah, listen, ASIS and Z invests across all areas of the economy.
01:39I've spent the last decade in fintech and financial services,
01:42both at the very earliest stages and the latest stages.
01:45And the way we think about it is every technology product wave
01:49creates a whole set of opportunities.
01:52As you look at mobile cloud, that brought us the neobanks.
01:55It brought us payment companies like Ramp and Stripe.
01:59And we're just at the start of AI, which is by far the biggest wave yet.
02:03And so I think we see an influx of new companies
02:07that are going to be competing with the banks.
02:08We see a lot of companies that are selling into the banks
02:11that help them become more AI-enabled.
02:13And both of those categories are going to be very successful.
02:16Can you put some more color on what those categories look like, Angela?
02:19What type of companies are the ones either doing the disrupting
02:22or getting bought by banks?
02:24Yeah, we think there's a lot of activity in maybe three buckets.
02:29The first would be described as software augments labor.
02:33And so if you think of a specific example, usually banks would buy a software
02:38and then they would have to hire sometimes thousands of people to then operate it.
02:43Compliance is a very good example.
02:44And I'll use one of our companies, Sardine, which sells transaction monitoring.
02:48Usually you would buy the software and then you'd have thousands of L1 compliance officers
02:53doing research into all of the alerts.
02:55Now the software does the software and also a lot of the labor around it.
03:00And so you can think of, you can't hire enough compliance people fast enough.
03:05You can't train them.
03:06Every one of these minor tasks takes 15 to 45 minutes.
03:09That can now be accomplished with AI.
03:11And all of that is happening across various areas of the bank.
03:15Randy, how are you thinking about dealmaking in terms of at KeyBank
03:19bringing in AI capabilities via purchases, via acquisitions, or growing it internally?
03:26How does that outlook appear to you?
03:29All of the above.
03:30AI is going to be a game changer for banks and certainly KeyCorp.
03:35We really think we're in the sweet spot because we're big enough to make big investments in this area.
03:41We're going to spend a billion dollars on tech investment this year, up from $800 million in 2024.
03:46But we're also small enough to deploy it at scale and do it quickly.
03:51And so we think it's going to be, just as you heard from Angela, a way to make for a
03:56better employee experience,
03:58a better client experience, as well as provide huge opportunities for us to get more efficient.
04:03Amit, are you doing a lot of work here when it comes to AI enabling of various banks?
04:06Absolutely. This is, you know, the topic that banks are really interested in.
04:10They're seeing real tangible benefits emerge.
04:13I think a year ago we were talking about AI as lots of experimentation.
04:17Now we see our clients really deploy AI at scale for both their client benefits and candidly to operate better
04:25and more efficient.
04:26I feel like we have to talk about some of the risks of M&A getting done in this sector.
04:31Randy, you're pointing at me being like, yeah, I feel like there's a big one out there, which is market
04:35volatility, concerns about war.
04:36How is that impacting your look ahead?
04:39Well, I think if you think about bank investors, specifically regional bank investors, they really aren't all that bullish on
04:47M&A.
04:48They'd rather see banks, you know, increase dividends, pay out, you know, make higher levels of share repurchase or invest
04:57in organic activity.
04:58And that's why we have really, you know, said we're not focused on bank M&A.
05:04But the other reason is for just what we talked about.
05:07M&A is highly distractive and it's not without risk, the execution risk.
05:12And when you're talking about deploying this incredible technology across, you know, scaled enterprises, we'd rather be focused on that.
05:21Angela, I'd love to get your take on that.
05:23What do you think of that risk that some of these things might act as a distraction and banks want
05:27to focus in on the core?
05:29Yeah, I've got a strong, strong agreement with Randy.
05:31Listen, like banks spend $650 billion globally on technology, but 70 percent of that has historically gone to just maintaining
05:39systems.
05:39And the view has been it's too risky to replace them.
05:43This is the year where the risk of not replacing them is going to outweigh the risk of replacing them
05:47because the new systems are just so much better.
05:50For instance, now in mortgage servicing, usually you can get 750 loans per employee.
05:57The new systems will get you $3,000.
05:58And then companies think they'll go up to $10,000.
06:00They can reduce your time to get a mortgage from 40 days down to 20 days.
06:04So often M&A is helping you grow and become more efficient.
06:07Now, with AI and technology, you can accomplish the same thing even better.
06:11There is some tension in there, though.
06:13Do you do these things?
06:15Does it maybe risk a distraction or is it necessary?
06:18Amit, where do you fall into this?
06:21I think it is necessary.
06:23If you don't disrupt yourself, you get disrupted.
06:26So I think we see that, yes, there is execution risks when you do big M&A.
06:31But if you don't actually invest in the right technology to continue to improve yourself, you get left behind.
06:36What do you think for where we head in 2026?
06:40We started this conversation, Scarlett, saying all of the deals that have been done, we've had the big purchasers come
06:45in.
06:45I mean, let's expand beyond KeyBank itself.
06:47But the overall market, do you expect there to be a lot of deal activity in FIG, in financials this
06:52year, Randy?
06:53Or do you think it might end up being more muted?
06:55I think it's going to be a normalized environment.
06:58Certainly, you know, a regain of more bank M&A.
07:02But I don't think there's any catalyst.
07:05And I really think that, you know, buyers are focused on how they can transform their business, you know, with
07:11the deployment of technology.
07:12And that's a huge opportunity, as we've been talking about.
07:16All right.
07:16Yeah, no, I think it will pick up.
07:18Now, even if you look at the price to book of the banks, yes, we are normalizing, but it still
07:23operates at a fifth of what the tech sector is or a third of what the industrial sector is.
07:29And at, you know, one, one and a half price to book, there's still a lot of differentiation in the
07:33market where we'll see M&A pick up.
07:35Angela, let me get your thoughts on this, not only on where volumes look, but I'd love for you to
07:40comment, too, on how valuations stand for the industry at the moment.
07:45Listen, I think that banks are very much leaning into AI in a way that we haven't seen across any
07:52of the other technology sectors.
07:53And it not only improves their efficiency, but also enables them to scale and serve a lot more customers.
08:00Like if you think of AI as a horizontal, you now have an army of infinitely patient, knowledgeable, available employees
08:07that work 24-7.
08:09And so you can hire you couldn't hire before.
08:11And you can also enable all of your employees to be more human.
08:15Do you want your wealth managers out talking to customers or do you want them in the back office doing
08:18paperwork?
08:19And so I think we're going to see the companies that lean into this technology the fastest scale much more
08:24quickly and valuations will come along with that.
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