martes, 12 de julio de 2016

martes, julio 12, 2016
As Low Rates Hammer Banks, Here’s a Silver Lining for Investors

Record-low interest rates will prompt some banks to consider selling out

By Aaron Back

Comerica offices in Dallas. The bank has been under pressure from investors and analysts to consider selling off part of its business. Photo: MATT NAGER/ BLOOMBERG NEWS


Plummeting interest rates are putting intense pressure on banks. For some lucky shareholders, though, there could be an unexpected benefit: greater impetus for mergers among lenders.

One of the clearest fallouts from the U.K.’s decision to leave the European Union has been a sharp decline in interest rates world-wide. In the U.S., the yield on 10-year Treasury notes fell to 1.37% on Tuesday, a new historic low, from 1.74% before the U.K.’s vote.

For banks, this is surely bad news as the profits they earn on loans will fall. Many had hoped that this would be the year that lending margins would finally rebound, helped by Fed tightening. The silver lining for investors is that bank managers who have been waiting for higher rates might now throw in the towel and consider selling out to interested bidders.

In recent weeks, there has been an uptick in bank-merger activity that could herald a sustained increase, says Christopher McGratty, analyst at Keefe, Bruyette & Woods. Last week, for instance, Canadian Imperial Bank of Commerce CM -0.40 % agreed to acquire Chicago-based PrivateBancorp PVTB -0.65 % for $3.8 billion. This deal stands out, says Mr. McGratty, because PrivateBancorp’s balance sheet is especially sensitive to changes in interest rates.

Due to regulatory scrutiny on big banks, most deals are likely to be between smaller, regional lenders. But there could be one notable exception: Comerica, CMA -3.45 % with $69 billion of assets and operations in Texas, California and Michigan, has been under pressure from investors and analysts to consider selling off part of its business.


CLSA analyst Mike Mayo, who has been a prominent critic of Comerica, notes that it is among the most interest-rate-sensitive banks of its size in the U.S. Asked by an analyst at a financial summit last month if Comerica needed higher rates to achieve a 10% return on equity—the level that shareholders generally like to see from a bank—its chief executive said it probably does.

Now, Comerica and its industry will have to move to Plan B. That puts M&A back on the table as a way to appease long-suffering shareholders.

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