Banking Sector Faces Consolidation Amid Regulatory Changes

The U.S. banking industry is primed for consolidation. Currently, there are over 4,500 banks, but four major players—JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup—control trillions in assets. Smaller banks will continue merging for scale, and a similar trend may emerge among larger regional banks with assets between $75 billion and $700 billion.

Under President Trump, regulators facilitated mergers and acquisitions in the banking sector. This stands in contrast to the more restrictive stance of President Biden’s administration. To compete with the big four, large regional banks must grow larger, often leading acquisition targets to command premiums for their shareholders.

1. Comerica: A Mid-Sized Player in a Competitive Market

Comerica (NYSE: CMA) ended Q1 2025 with approximately $78 billion in assets, operating primarily in attractive markets such as Texas and the rapidly developing Southeast U.S. This size presents a challenge, as it is too large to qualify as a local bank but not substantial enough to compete directly with major banks.

Historically, the $100 billion mark has been a contentious size among banking regulators, viewed as too big to fail. This creates ongoing reassessments of capital requirements for banks in this category.

Image source: Getty Images.

Last year, Comerica decided not to renew its banking relationship with the U.S. Treasury, which provided $3 billion in noninterest-bearing deposits. While the agreement will continue for the next few years, its expiration may explain Comerica’s low valuation compared to peers.

In acquisition scenarios, a bank’s price-to-tangible book value (PTBV) is crucial as it reflects its worth relative to tangible equity. A higher PTBV often indicates a bank that can afford to acquire others without significant dilution.

CMA Price to Tangible Book Value data by YCharts

While Comerica’s low position among its peers does make it an attractive acquisition prospect, it needs to actively express interest in selling. CEO Curtis Farmer, age 62, has a change-in-control agreement that would pay him over $35 million if the bank were acquired.

2. KeyCorp: A Valuable Target with Strategic Potential

KeyCorp (NYSE: KEY) is another candidate for acquisition as the Trump administration progresses. It currently ranks lower in PTBV compared to other banks.

Its appeal lies in its capital-light, fee-based businesses, such as investment banking and trust services. Any bank aiming to compete with the top four could find acquiring KeyCorp a strategic move.

Last year, KeyCorp sold a 14.9% stake to Scotiabank for $2.8 billion, aiming for improved capital flexibility. This transaction allowed KeyCorp to restructure its bond portfolio amid rising interest rates.

Although the agreement restricts Scotiabank to a maximum 19.9% stake for five years, analysts speculate that a full acquisition may eventually occur. However, this does not preclude other banks from pursuing KeyCorp for acquisition.

KeyCorp’s CEO Chris Gorman, also 64, has a change-in-control agreement that could result in a payout close to $35.7 million if the bank is acquired.

Conclusion

Investors should contemplate the implications of mergers in the banking sector, especially regarding companies like Comerica and KeyCorp. Keeping abreast of these potential changes could inform future investment decisions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.