Year-to-date, the regional banks are on fire like almost nothing else I follow. The below chart shows $ZION, $SNV, $FITB, $KEY and $RF since January 4th (purple line’s the S&P 500)…
From my perch, the move is being aided and abetted by the following factors (in no particular order):
1. Generally improving risk appetites across all markets and asset classes
2. A sense that commercial real estate fears have been overblown
3. Massive liquidity resulting from money leaving the sidelines and the bond market
4. “If they survived this long, they’re probably here to stay”
5. Positive trend change in employment and/or home prices
What’s interesting for those of us that trade and follow this group regularly is that there is absolutely zero buyout chatter. I haven’t heard a bank rumor in quite some time. This is significant because historically, to see rallies even approaching this one in the regional bank sector, you had to have at least one big deal announced and a flurry of rumor-mongering.
Not so this time. Everyone knows that the natural buyers (money center banks, European financial companies) wouldn’t dare announce a non-FDIC sanctioned expansion. The political climate simply wouldn’t allow it (could you imagine Vikram Pandit having the gall to buy a 700 branch banking franchise in the southeast right now?).
In addition, shareholders of the big US banks are not interested in any transaction that adds commercial loan liability to the balance sheet. They want their dividends reinstated before they want any ‘footprint’ growth.