Bank Q1 Cheat Sheet: Lower Earnings, More Buyouts

In a new report, Deutsche Bank analyst Matt O’Conner discusses the implications that the FOMC decision to delay a potential interest rate hike will have on bank stocks. According to O’Conner, the banking industry will likely be in for some major consolidation in coming years.

“Given a lower-for-longer interest rate environment seems increasingly likely, this could potentially lead to a pickup in bank deals as more banks look at M&A as an alternative to drive growth,” O’Conner explains.

Related Link: Why Is The April 17 OPEC/Non-OPEC Producer Meeting Such A Big Deal?

Deutsche Bank has a scoring system in which it ranks 75 banks based on their likelihood of a takeover. The ranking considers a number of factors, including the age of the CEO, price/TBV, 3-year stock performance, projected ROE, securities/assets, efficiency ratio and revenue.

According to Deutsche Bank’s system, Comerica Incorporated CMA has replaced Zions Bancorporation ZION as the most likely buyout candidate with greater than $50 billion in assets. In addition, Hancock Holding Company HBHC is the top target with $20-50 billion in assets, and Trustmark Corp TRMK is the top buyout candidate among banks with $5-20 billion in assets.

Finally, with Q1 bank earnings season set to kick off in about a month, Deutsche Bank slightly lowered EPS estimates for Citigroup Inc C, KeyCorp KEY and Regions Financial Corp RF to $1.02, $0.23 and $0.16, respectively.

Disclosure: the author holds no position in the stocks mentioned.