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Zions, Comerica, First Horizon: Regional bank takeover risk

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A customer enters Comerica Inc. Bank headquarters in Dallas, Texas.

Cooper Neill | Bloomberg | Getty Images

A trio of regional banks face increasing pressure on returns and profitability that makes them potential targets for acquisition by a larger rival, according to KBW analysts.

Banks with between $80 billion and $120 billion in assets are in a tough spot, says Christopher McGratty of KBW. That’s because this group has the lowest structural returns among banks with at least $10 billion in assets, putting them in the position of needing to grow larger to help pay for coming regulations — or struggling for years.

Of eight banks in that zone, Comerica, Zions and First Horizon might ultimately be acquired by more profitable competitors, McGratty said in a Nov. 19 research note.

Zions declined to comment. Comerica and First Horizon didn’t immediately have a response for this article.

While two others in the cohort, Western Alliance and Webster Financial, have “earned the right to remain independent” with above-peer returns, they could also consider selling themselves, the analyst said.

The remaining lenders, including East West Bank, Popular Bank and New York Community Bank each have higher returns and could end up as acquirers rather than targets. KBW estimated banks’ long-term returns including the impact of coming regulations.

“Our analysis leads us to these conclusions,” McGratty said in an interview last week. “Not every bank is as profitable as others and there are scale demands you have to keep in mind.”

Banking regulators have proposed a sweeping set of changes after higher interest rates and deposit runs triggered the collapse of three midsized banks this year. The moves broadly take measures that applied to the biggest global banks down to the level of institutions with at least $100 billion in assets, increasing their compliance and funding costs.

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Invesco KBW Regional Bank ETF

While shares of regional banks have dropped 21% this…



2023-11-27 11:23:00

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