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00:00My next guest is Tom Michaud, the CEO of KBW, a Stiefel company, and KBW advises firms in the
00:05space. And Tom is the key voice in financial sector dealmaking. He's been CEO since 2011
00:11and oversees investment banking, research, and capital markets across U.S. and Europe.
00:15And he joins me now to take a look at the big picture. Tom, thank you so much for joining.
00:18Great to be with you.
00:19I have to say, it was coming into this new administration, this idea that banking M&A
00:24would really pick up. And we saw examples of that, certainly. But it feels like it's
00:28kind of mellowed out a bit in 2026. Is that the case? Are things starting to slow
00:34down? Well, it does ebb and flow. So when you take a step back, the industry's been
00:38consolidating for a really long time. I think it will continue to keep consolidating. I think the buyers are
00:44somewhat busy because they're still integrating acquisitions that they've done
00:48recently. So I think it's a steady pace. It's not necessarily a big bang in terms of the
00:53consolidation. But I'll tell you, I think the Webster deal that happened recently was somewhat of a
00:58surprise to the marketplace, having a foreign entrant into the M&A, into the M&A game. And there's no
01:03reason to think that you couldn't see big deals like this happen again.
01:06Well, who big, which big buyers are left? Because you've had PNC, Huntington, Fifth Thirds, now Webster with
01:13with Santander. Are there still big ticket deals that can be done?
01:17I think there are. So remember, since 2021, for three years in the last end of the prior
01:23administration, no over $200 billion bank had bought another bank. There essentially was a big
01:29bank merger moratorium in the prior administration. So you would think those big banks are back. And
01:35number one is the economics of this consolidation does make sense for the industry. Scale for the typical
01:41bank does work. So scale is working. But now you have an administration that's willing to allow
01:47it in a safe and sound manner. So the banks feel like they're a little bit on the clock because
01:54we're
01:54going to get a presidential election a little bit over two years. And then you don't know if the next
01:58president's going to think differently. So there's a little bit of a sense the industry's on the clock,
02:03which is part of the reason why I believe it's going to continue.
02:06And this is an administration that cares one deeply about affordability. And you've seen some of those concerns
02:10filter through to the finance sector, things like credit card caps and that nature. Paul Taubman
02:15was on the show last week and basically said, yes, dealmaking is back. But if it's impacting
02:20affordability, maybe regulators give it a second look. Does that impact the flow of deals for
02:25affordability? Well, I think what it is, is it's frankly pro-bank decision. Let me tell you why.
02:31Because this administration is working to level the playing field between banks and non-banks.
02:36I would argue that the playing field was stacked against the banks since the global financial
02:42crisis with really the never-ending tightening of regulation and capital requirements. Now there's
02:47a level setting of the playing field, which I think puts the banks more on their front foot,
02:52which I think would probably support more M&A activity going forward.
02:56So as I mentioned in the introduction to you, Tom, at one point banks were reaching a high in February,
03:01and there was some commentary. Maybe there'll be less M&A because valuations look better. They feel
03:05more confident they don't need to sell. Now banks entered a correction since the war started,
03:10inflation concerns, what have you. How does that type of market action impact dealmaking? Does it
03:15fuel it? Does it make a pause? So if you look over the decades, literally, if we're in a recession,
03:20which no one's talking about now, but if you are, or if credit quality is the issue of the moment,
03:26that typically slows M&A. So whether, so if those concerns rise, there is a chance over time it will
03:34slow M&A. But all that being said, first quarter results, and we even held a bank conference this
03:40week. Current comments are there are no signs on the credit quality spectrum now, at least in the
03:46banking sector. I know there are private credit issues, but in the banking sector all is okay. And I would
03:51even say, look at the credit card companies, which in the last week did come out with a bunch of
03:55data that was
03:56all fairly consistent with expectations. So, so far, it's holding together. There are certainly mid-market
04:02banks that lend to mid-market private credit companies. Have you seen any deals pause because of concerns
04:08around private credit? No, not yet. I mean, I would say right now that nothing's leaked into the banking industry.
04:13And really,
04:14the issues have been more around fraud. I mean, you can't really prepare for fraud. So it hasn't leaked
04:20into the banking industry. And I think actually, this is a moment. This is a moment for the banking
04:25industry to say, hey, our underwriting has been more sound. And I think it's an important test. And I
04:30think the industry is probably likely to do well through it. To be fair, there have been plenty of
04:35banks who have been exposed to some of that fraud. Do you think that there has been a reevaluation of
04:40exposures of underwriting standards that's happened in the industry writ large? Well, I would say,
04:45I would say yes. I would say that underwriting is generally probably going to get more conservative
04:50along anything that's levered or anything that's in the AI space. Doesn't mean that credit won't be
04:54available. But my instincts are that is that there will be a tightening of credit standards in those
05:01areas. But if you look at the core bread and butter economy, most of the feedback we get in our
05:07channel
05:07checks is that the economy is still OK at the middle market level. But if this war continues and if
05:14fuel prices stay at $100 a barrel for oil, that could change. That's exactly where I wanted to go.
05:20Let's say that this is more of a prolonged conflict. The noise in the administration is that it's short
05:25term. How long does this need to go on for there to be some serious damage to the sector and
05:30therefore
05:30deal making. I personally believe it would have it have to show up in the in the in the balance
05:36sheets. So
05:36I mean. So by the way, you mentioned how the stocks are off. My expectation is when we get to
05:41the end of the
05:42quarter and see the results. Banks accelerated their share repurchase programs. So look analysts have
05:47expectations for share buyback. They're going to probably buy back more stock at lower prices, which if we can navigate
05:54through this war
05:55without too much damage to the economy and the banks have done that. That'll be a good thing. So it's
06:00not like
06:00you can take all the good outcomes off the table yet. So so it's unclear which one you will get.
06:06But if this
06:06did lead to a prolonged increase in credit quality, I think that would slow it down. But we don't see
06:11anything
06:12like that yet. Hey Tom, before you go, I do want to leave on Europe because we have this will
06:16they won't they
06:17have of Commerce Bank and unit credit, which has been happening for some time now. The FT reporting about a
06:21delaying of
06:22capital rules coming from the EU. What is your expectation and what European. So there are some
06:27powerful forces underway that I think bank consolidation is going to continue. I think
06:32financial services consolidation is going to continue. Even this week you saw in the asset
06:37management space with victory saw an increase in a takeover bid. So I think and it's because financial
06:43services has become a giant collision. You've got stable coin, digital assets, fintechs. There is probably
06:50a record number of fintechs today that are applying to be banks. So it's actually in some ways rather
06:56exciting. OK that what's happening. And I think M&A across all these verticals is going to happen.
07:03So I think that that's bullish as long as the economy hangs in there enough. I think it will continue.
07:09But then there's the generational change in regulation which isn't just in the U.S. I and we get lots
07:16of
07:16questions about the durability with this president to deregulation. But when you look to Europe Europe is
07:22now joining the parade on deregulation of the banks. And I think they realize how far behind their big
07:28banks have fallen in terms of performance with the American banks. And I think they're letting up on the
07:33sort of the regulatory attack on their industry. So I think that's going to level the playing field which will
07:39probably be good for consolidation in Europe which I think will happen. Tom we're almost out of time so
07:44I hate to ask you this one last question when we only have about a minute left. But is there
07:48some AI
07:49anxiety also within some of these financial services firms of new fintechs coming up. How does that change
07:53the picture. So there there there is lots of AI. Now we just had our biggest bank conference of the
07:59year
07:59about four weeks ago. And I would say universally the view is AI for the banking industry should be
08:05winned in the sales not against the sales. Meaning banks are going to use it too. Let me leave you
08:11with
08:11this fact. JP Morgan's going to spend 19 billion dollars on tech this year. We couldn't find more than
08:1810 American companies that are going to spend 19 billion on tech. Now the hyperscalers spend hundreds of
08:24billions. So a lot more. But if JP Morgan spends more money on tech than most tech companies that
08:30should prepare them pretty well for that for that moment. So in my view is the the banking industry
08:35what's different. They got lots of earnings. These earnings can come to support their investments in
08:41AI. And they also have I think very good regulation. They've had too much but very good which I think
08:47makes
08:47them safer than some new entrants that don't have all that infrastructure. They should be able to
08:53join the AI movement and hopefully not get displaced by it. And I think they will adapt. So I wouldn't
09:00write the banks off on the AI. But I do think the future is if you want to succeed your
09:06efficiency
09:06ratio needs to get better. You need to be materially more efficient at doing your business because AI is
09:13going to drive it. And you better plan on it or else you're going to get passed by. And I
09:17see a lot of
09:18banks working to make that happen. Tom you're one of the best. Please come back again. Thank you. Such a
09:22pleasure to have you here. Thank you. That's Tom Michaud, CEO of KBW Estifel Company.
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