M&A is back, Stocks and Oil Struggle

Bank mergers are back, BB&T will buy Suntrust to create the nation’s sixth largest bank in an all-stock merger valued at $66 billion.  The world’s largest bank merger in over a decade was positively received by Wall Street as shares for both companies sharply rose.  The larger super regional banks are trading higher as speculation will continue to grow that we will see further consolidation in the industry.  Shares of KeyCorp, Regions Financial Corp, Comerica, First Horizon and US Bancorp are trading higher and will likely remain on the radar for future mergers.

The premium for a mid-size bank merger is low as financials continue to be weighed down by low rates, weak loan growth and high costs of adopting digital.  With the US economy widely expected to see slower growth in the coming years, we could see rapid consolidation in the next few quarters as regulatory hurdles have eased.

Excluding the bank mergers in the financial crisis, we have not seen much in M&A space since the PNC and RBC merger in 2012 and the Capital One and ING one in 2011.

Stocks

Stocks are trading lower as markets struggle to find a fresh catalyst higher, with many appointing weakness to the usual suspects of global growth concerns, uncertainty on the trade front, potential second government shutdown, and Brexit.   Markets could remain in limbo until we get through the rest of earnings season, see significant progress on the trade front and for the UK to move closer to accepting an extension of Article 50.

Oil

Crude prices returned to the lows of the week as slower growth prospects around the world and improved weather in the U.S. could signal a return for inventories to rise.  Some of the recent rally was attributed to the political uncertainty in Venezuela that led to sanctions on their crude.  The end of the Presidential standoff between opposition leader Guaido and Nicolas Maduro could be nearing even as Russian remains committed to supporting Maduro.  Despite the arrival of 400 Russian military contractors, Russia may not want to keep investing in Maduro and could eventually settle on being fine with Guaido.  If Maduro evacuates or concedes, the markets will expect sanctions to be lifted and we could see oil initially weaken.

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