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Can 2 Wrongs Make it Right?

The world awakened this morning to a significant merger in the US Banking Sector. Innovative technology, an aging population, changing preferences, new non-traditional competitors, and pandemic accelerators all conspire to highlight system capacity that is expanding faster than the number of companies can shrink.

There will be more bank mergers to come. But they do not solve the core problem: the structural absence of enduring operating leverage. It seems banking is a business of scale that, at present, remains sub-scale at nearly ALL sizes.

Our thought for bankers today and for all the tomorrows we can see from here is a simple one, spotlighted by this proposed combination. Operating leverage requires more than M&A. It starts and ends with D-N-A. Expense management should move forward in the strategic plans and investor slide decks of banks aiming to thrive. Operating leverage is great for profits, accretive to capital, and elevating for equity valuation. And it's in there somewhere, for those willing to look hard.

Most banks are cycle plays. Really good banks are cycle management plays. Great banks are all that plus operating leverage. Our message to the best of the banking industry? Dare to be great.

We can help you think through the issues and the opportunities. Let us persuade you to brainstorm your way to being great. Today's M&A news is an old play from a dog-eared playbook which doesn't alter the strands of DNA relegating this industry to deep cyclicality and discounted valuations.

Let's see what tomorrow brings.

Disclaimer: For Discussion Purposes Only. All investing entails risk of loss of capital. Seek trusted professional advice consistent with personal goals and risk tolerance. Past performance is no guarantee of future results.


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