After three days in the Arizona desert at Bank Director’s Acquire or Be Acquired conference, one thing was clear: community bankers view the next four years under the Trump administration as a time of action.
From small-town institutions to regional heavyweights, industry leaders signaled a similar message, namely further appetite for M&A, raising tier 1 capital, accelerating commercial loan growth, or continued digital transformation.
With a string of oversubscribed equity offerings in late 2023 and optimism surrounding the M&A pipeline, we maintain our view that the first half of 2025 will see elevated deal activity, as we outlined in our January outlook.
With that, here are my top 3 takeaways from Phoenix that others aren’t talking about:
- More than ever, banks are responsible for telling their story.
- Whether it is to investors, analysts, regulators or talent prospects, more than ever I think banks are feeling the pressure to tell their story more effectively to external stakeholders. Everything remains super competitive, and in an industry that has traded in lockstep for the better part of two years, many are frustrated and wondering how they can show differentiation starting in 2025.
- We are digging deeper into how the industry’s talent and strategy will intersect in the future, and one theme I’m following is where top talent from failed institutions such as Signature Bank, First Republic or Silicon Valley bank, have landed and could help stories differentiate. Some interesting names to watch are Bank of San Fransisco, who has recently hired several former First Republic executives, and OceanFirst Bank, who appears to be adding some former Signature Bank commercial deposit talent. More to come from Travillian on this topic…
- Profitable growth remains a key for us, whether trying to attract new talent or investors to your bank – the ability to show a clear path on how you’re growing the bank in a profitable manner is differentiating, and still not often being clearly demonstrated today. M&A can be a catalyst, but scale doesn’t always fix a fundamental profitability issue within a commercial bank – investors will eventually sniff this out!!
- Despite significant posts you will see to the contrary, I don’t believe the bank executive / tech vendor engagement at the conference was anywhere close to peak levels back in 2021 / 2022.
- Things are certainly getting better, but 2025 budgets and current profitability are still below historical averages due to lower margin. We are involved with multiple strategic planning / budget engagements and technology spend isn’t increasing significantly year-on-year. The biggest palpable change I’ve seen is more priority from a human capital standpoint, where many of these projects stalled over the past two years due to increased focus on liquidity, deposits and credit risk.
- What are bank executives discussing from a tech perspective? Treasury capabilities, more hedging programs and AML platforms, automation, cyber security and the ability to more efficiently grow digital deposits. This isn’t meant to be a catch all – there is a lot more going on than just these areas – but my notes mentioned these topics the most frequently. The sexy items, digital assets / stablecoins and artificial intelligence, continue to percolate at these events although we generally don’t see broad project launches focused on these areas yet across the industry (said differently, its more selective).
- AUM in-flows to financial sector specific funds (both hedge funds and long only’s) – most of which seem to have a fairly optimistic outlook for bank stock performance in 2025.
- While Acquire or Be Acquired isn’t an investor conference, we were able to catch up with several notable institutional investors in the bank space during our time in Phoenix, and optimism around improving AUM flows came up on multiple occasions. There has been a reduction in capacity for small and mid-cap bank stocks since the initial pull-back at the on-set of the COVID lock-downs, which negatively impacted several long-only sector focused funds. Increasing AUM that is being allocated to bank investments is a positive indicator that shouldn’t be understated, particularly when trying to figure out if the KBW Regional Bank Index (KRX) can out-perform the S&P 500 in 2025. (Year-to-date, the KRX is +6% versus S&P 500 at +3%, which compares to 2024 where the KRX was +10% and S&P 500 was +25%.)
- More clarity on regulatory leadership is expected soon, and with that, the industry is starting to get excited about some of the names being floated around. Rhetoric from political bodies is already more pro-innovation and M&A, although it isn’t all “good” news for banks. There is increased chatter about accelerating de-novo activity and also fintechs buying bank charters, which could make pockets of banking more competitive. Credit Unions also remain an increasingly relevant competitive threat.
There are few conferences that have the density of Acquire or Be Acquired, and overall, we think its notable that across such a large group of bank industry participants, the tone of the conference was optimistic and pro-active. Pipelines from all areas, whether it is investment bankers, service providers like Travillian, or technology venders, are up year-on-year, which is directly a function of increased growth appetite from the bank’s themselves. We remain cautiously optimistic; stable rates and inflation, normalized M&A volume and increasing GDP growth should provide a nice runway for U.S. banks in 2025.
