Deal negotiations are returning to the U.S. banking sector after years of drought, and Wells Fargo analyst Mike Mayo analyzes which companies could be the next targets. Mayo, one of the industry’s most-watched banking analysts, said the setup harkens back to the 1990s, when a wave of deregulation swept through the consolidation of local and regional banks. “I lived and worked during that era,” he said on CNBC’s “Power Lunch” Monday. “It starts little by little and other people take note of it too and it creates a domino effect. Merger Monday is back for banks. Stay tuned over the next 12 months. We should see a lot more mergers. We are in the midst of the greatest deregulation in 30 years.” On Monday, Fifth Third Bancorp announced plans to acquire Comerica in an all-stock deal valued at $10.9 billion, marking one of the largest regional bank consolidations in years. Mayo saw it coming. In fact, he added Comerica to Wells Fargo’s acquisition basket (a list of potential M&A candidates compiled by his team) six weeks ago. Wells Fargo Securities’ head of large U.S. bank research said the environment is increasingly conducive to mergers as the U.S. government signals a loosening of regulations. “You can dream in this deregulated environment. This is a more pro-bank, pro-business, regulated environment, and it’s the most enriching environment we’ve ever had,” Mayo said. “I think today’s mergers are evidence that Goliath is winning in the banking industry. Scale is more important than ever. It’s for distribution, it’s for brand, it’s for technology, it’s for competing with the largest banks.” Mayo said that as a category, mid-cap banks are more likely to merge. Other names in the acquisition basket include Bank of California, BankUnited and First Horizon, all mid-sized banks that could attract larger buyers looking for scale and efficiency.
