Two National Guard members shot near White House
Investing.com - Regional bank stocks involved in merger and acquisition deals this year have underperformed the broader market despite hopes that consolidation would boost competitiveness against larger institutions.
Six bank deals exceeding $1 billion have been announced in 2023, ranging from Huntington’s $1.7 billion acquisition of Veritex to Fifth Third’s $10.9 billion purchase of Comerica, with premiums paid between 6% and 23% for publicly traded companies. Despite reasonable deal assumptions, stocks of acquiring banks have generally declined since their announcements.
Pinnacle Financial Partners experienced the most significant decline, underperforming the KRE regional bank index by 12% on the day its merger of equals with Synovus was announced. The negative sentiment has spread beyond individual deal participants, affecting the broader regional banking sector.
Regional banks currently trade at approximately 50% of the S&P 500’s multiple, substantially below their 30-year average of 70-75% and at a sharp discount compared to mega-banks. This valuation gap persists despite the consolidation trend that many industry observers had anticipated would strengthen regional institutions.
Several factors appear to be driving investor caution, including integration concerns, skepticism about projected cost savings, potential disruption to organic growth, reduced share buybacks, and anticipated expenses related to post-merger build-outs at institutions like Fifth Third and Huntington.
In some cases, such as Pinnacle/Synovus, market disappointment may stem from investors having previously hoped both institutions would be acquisition targets rather than merger partners.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.