麦格理-美股-银行业-超级地区银行：前景很难改变-2019.2.25-27页.pdf

Please refer to page 25 for important disclosures and analyst certification,or on our website February 2019 United States EQUITIES Estimate Revisions Source:Company data,Macquarie Capital(USA),February 2019 Price Target Revisions Source:Company data,Macquarie Capital(USA),February 2019 Analysts Macquarie Capital(USA)Inc.David Konrad,CFA +1 212 231 0525 Jack Walsh +1 212 231 1840 Super Regional Banks Landscapes are hard to change;reiterating UP on CMA and OP on KEY Key points Following the market reaction to the BBT/STI merger,we analyze 6 hypothetical bank mergers;however,BBT/STI deal will be tough to replicate.Potential combinations with CMA are our least favorite given the company is trading above 2x TBV and has a unique footprint in MI,CA and TX.The combination of USB/KEY is our top idea providing 11%EPS accretion to USB and neutral to TBV due to overlap in Western states and Ohio.Event Following the BBT/STI merger announcement,there has been a higher level of buzz in the market regarding“who is next”.In fact,there have been recent articles in the FT and on CNBC regarding the larger players such as PNC and USB looking to further build scale in reaction to the BBT/STI deal while the articles suggested that HBAN,KEY,CFG and CMA could look for a partner.In our view,there will unlikely be large scale consolidation of the super-regional bank landscape following the BBT/STI deal given the uniqueness and attractiveness of that deal,including one of the most attractive overlap of branches that strengthens the combined footprint and both management teams could agree on succession plans for future leadership.As a result,we believe it will be challenging for the remaining super-regional banks to copy this merger.That said,we have determined 6 hypothetical combinations in this report.USB/KEY is our top idea.Impact Our most compelling combination is USB/KEY.The USB/KEY combination is provides 11%EPS accretion for USB(neutral on TBV)partly due to the valuation gap(USB at 2.3x TBV vs.KEY at 1.6x)an interesting branch footprint overlap with consolidation opportunities in Ohio while furthering USBs strength in Oregon,Washington and Colorado.Although KEY/HBAN is 9%accretive,it is 7%dilutive to proforma TBV.In addition,we believe it offers less long term shareholder value than USB/KEY due to slower growth rates with too high market share in Ohio.Not so Fast.Although CMAs stock was up approximately 5%on the news of the BBT/STI merger(BKX was up 0.5%),we believe a potential deal with CMA will be challenging partly due to a high P/TBV(2.05x vs.peers at 1.77x)coupled with a unique footprint primarily in three states resulting in challenging cost saves.A potential merger with USB is only 1%EPS accretive for USB and 4%dilutive to TBV.It is worse for PNC,which is 1%dilutive to EPS and 8%dilutive to TBV.Better than we thought.Initially,we thought limited overlap and corporate cultures would not make a hypothetical PNC/RF deal interesting;however,it does look attractive at 9%EPS accretive for PNC(4%dilutive to TBV).There is meaningful overlap in Atlanta and Florida,which will help both banks build a more meaningful presence in those markets.However,we do not believe this pairing has a high probability as PNC will unlikely give up management positions,and RF may be unwilling to turn over the keys in a low premium deal.PeriodNewOldDelta2019$4.19$4.190%2020$4.94$4.881%2021$5.35$5.252%BBTPeriodNewOldDeltaBBT$53.00$52.002%STI$68.00$67.002%USB$60.00$61.00-2%Price TargetsMacquarie Research Super Regional Banks 25 February 2019 2 Landscapes are hard to change Following the BBT/STI merger announcement,there has been a higher level of buzz in the market regarding“who is next”.In fact,there have been recent articles in the FT and on CNBC regarding the larger players such as PNC and USB looking to further build scale in reaction to the BBT/STI deal while the articles suggested that HBAN,KEY,CFG and CMA could look for a partner.In our view,there will unlikely be large scale consolidation of the super-regional bank landscape following the BBT/STI deal given the uniqueness and attractiveness of that deal.First,the BBT/STI has one of the most attractive overlap and extension of branches that strengthens the footprint compared to other potential super-regional potential mergers.In fact,we are raising our 2020 and 2021 by$0.06 and$0.10 to$4.94 and$5.35,respectively,as we believe management will overachieve on the guidance of 12.5%total cost saves,or approximately 28%of STIs expense base.Based on the 2%increase in estimates,we are increasing BBTs price target to$53 from$52 and STIs to$68 from$67(constant exchange ratio).We are now assuming 35%cost saves relative to STIs cost base.Second,the fee income businesses complement each other to have a more diversified base with lower volatility.Moreover,the deal size makes a lot of sense with each bank approaching a regulatory threshold of$250bn in assets.The proposed merger will efficiently exceed this level nearing$475bn.Finally,both management teams could agree on succession plans for future leadership of the combined bank.As a result,we believe it will be challenging for the remaining super-regional banks to copy this merger.That said,we believe there are a few potential deals that look interesting.In this note we analyse various combinations of the super-regional banks mentioned in the press,and we used a similar deal structure used in the BBT/STI deal such as a high single digit premium,2%loan mark,all stock transactions and 30%(of the target expense base)as the target cost saves with modest variation depending on size of branch overlap and potential further management cost saves if the deals are treated more as an acquisition than a merger of equals.In addition,we only analysed hypothetical deals that had franchise overlap and did not include more pure market extensions such as USB/RF and USB/CFG.Finally,we did not include FITB in our analysis given its pending acquisition of MBFI.In our view,a hypothetical USB/KEY combination is the most compelling due to relative valuation and interesting market overlaps.We reiterate our Outperform rating of KEY and USB.However,we are also reiterating our Underperform rating on CMA,as a potential deal with USB is not compelling and a potential deal with PNC is unattractive due to CMAs price to tangible book value coupled with limited consolidation and cost saves given the unique footprint in Michigan,Texas and California.Macquarie Research Super Regional Banks 25 February 2019 3 Our most compelling combination:USB/KEY 11%accretive The USB/KEY combination is our most compelling hypothetical idea with 11%accretion for USB partly due to the valuation gap(USB at 2.3x TBV vs.KEY at 1.6x)but also due to complementary fee income combination(the deal would not cause fees to decline as a percentage of revenues for USB)and an interesting branch footprint overlap.One of KEYs historical Achilles heel has been the lack of efficiencies in its community banks,particularly in its western franchise.This deal would solve that issue and bring the KEY franchise under the USB footprint and providing efficiencies through greater scale.Importantly for USB,it would move the bank from a good foothold in markets such as Washington,Oregon and Denver,to a leadership position.Ohio is another interesting market where there is strong overlap but also complementary,as USB is strong in the southern part of the state while KEY has strength in the northern part of the state.Lastly,the New York market would be a market extension for USB;however,with KEYs core franchise coupled with the FNFG merger,KEY has strong market share and efficiencies in this market.Unique to other options,KEYs fee income relative to total revenues approximates that of USB,which is compelling to drive growth in a challenging interest rate environment.One issue could be KEYs capital markets business(remember USB did spin out Piper Jaffrey);however,this business appears manageable as pro forma capital markets and corporate banking fees moves from 4%of revenues to 6%.Finally,KEYs Board might have some level of frustration given the stocks underperformance to the BKX of approximately 15%over the past five years.Part of this underperformance is certainly due to the drop in value following the FNFG announcement;however,KEYs stock has underperformed the BKX four times out of the past five years.Fig 1 KEY Underperformance Source:FactSet,Macquarie Capital(USA),February 2019 FY14FY15FY16FY17FY185 YR ReturnKeyCorpKEY3.6%-5.1%38.5%10.4%-26.7%30.9%KBW Bank IndexBKX7.2%-1.6%25.6%16.3%-19.6%44.5%S&P 50011.4%-0.7%9.5%19.4%-6.2%51.0%vs.BKX-3.6%-3.5%12.9%-5.9%-7.1%-13.6%vs.S&P 500-7.8%-4.4%29.0%-9.0%-20.5%-20.1%Macquarie Research Super Regional Banks 25 February 2019 4 What would a USB/KEY deal look like?Assumptions:Deal price:$19.31bn,or 7%premium to KEYs market cap.New Goodwill:$8.9bn Implied P/TBV:1.7x Exchange Ratio:0.39 Gross Loan Mark:2%of KEY loans Core Deposit Intangibles:2%of non-time deposits One-time merger costs:$1.70bn Estimated Divestitures:$952mn Cost Savings:$1.35bn,or 35%of KEYs 2019 expense estimate(90%achieved in 2021)Per share accretion for USB:11.0%Fig 2 Hypothetical Estimated Merger Accounting Source:Company data,Macquarie Capital(USA),February 2019 Conversion Ratio0.387Deal Value$19,308Proforma KEY TBV$10,412New Goodwill&Intangibles$8,896KEY Balance Sheet($mn)Assets$139,870Loan mark(2%of 4Q19E)$1,817Loan loss reserve(4Q19E)$918(-)Net(AT)$728(-)Existing Goodwill$2,818(+)DTA$331(-)Estimated Divestiture$952Total$135,703$135,703CDI$1,904Goodwill$6,992Proforma Assets$144,599Liabilities$124,821Estimated Divestiture$952Total Liabilities$123,869$123,869Preferred$1,421$1,421$19,308New Goodwill&Intangibles$8,896Estimated Merger Equity$10,412$10,412USB Tangible Equity$36,994(-)Charge$380Combined Proforma Tangible Book Value$47,026Macquarie Research Super Regional Banks 25 February 2019 5 The pro forma deal highlights appear favorable.One issue is that pro forma assets are projected to be just of$640bn in 2021,which will leave approximately$60bn for growth before hitting the next Feds proposed asset threshold of$700bn(which would add liquidity coverage requirements from 85%to 100%and add AOCI to capital testing).However,this does leave room for growth and USB could potentially manage the consolidated balance sheet through lower securities and de-emphasis lower return loan portfolios.The pro forma ROA is accretive by over 10bps while the pro forma ROTCE is accretive by 150bps.We note because of the high overlap in the western franchises and in Ohio,we used 35%cost saves for KEYs base versus our base cost saves for this analysis of 30%.Importantly,the pro forma fees to revenues remains fairly constant at 43%and capital is modelled to be constant with a CETI of 8.9%.Finally,this combination is relatively neutral to TBV per share.Fig 3 Financial Highlights:Current USB Fig 4 Financial Highlights:Hypothetical Proforma USB/KEY Source:Company data,Macquarie Capital(USA),February 2019 Source:Company data,Macquarie Capital(USA),February 2019 Branch Footprint Overlap In our view,this merger would make the most sense in terms of branch overlap.While USB already has a strong hold on the number one spot for overall deposit market share in Ohio,pro forma share would increase to approximately 24.5%from 17.5%with a combined 486 branches,well above HBAN who holds the second spot with 15.5%market share.While USB already holds top market share in the majority of the southern Ohio regions,particularly Cincinnati with a 47.7%market share,the pro forma company would take it from fourth to third in Dayton(combined 16.5%).Moreover,with KEYs strong north Ohio footprint,the pro forma bank would have a 26.5%market share in Cleveland(first vs eighth for standalone USB),10.8%market share in Toledo(KEY currently ranks third and USB has no branches),and 13.3%market share in Akron(third vs ninth for standalone USB).Additionally,we believe one of the main lags to KEYs pace of improvement in operating leverage is from inefficiencies in its western footprint.By combining with USB,it would help alleviate this problem.USB and KEY have major branch overlap in major MSAs such as Denver/Aurora/Lakewood(combined 20%market share),Seattle/Tacoma/Bellevue(18.75%market share),and Boise(34%market share).The pro forma company would jump above both WFC and JPM in Seattle/Tacoma/Bellevue to number two in rankings vs four(USB)and five(KEY)currently as well as taking the top share in Boise from WFC.2018A2019E2020E2021ETotal Assets($bn)467.4479.5488.0495.8ROA1.48%1.45%1.48%1.45%ROTCE19.4%18.8%18.9%18.4%Fees as%of Total Revenue42%42%43%43%Efficiency Ratio54.4%54.3%53.9%53.9%CET1 Ratio8.9%9.0%8.9%8.9%Total Shares($mn)1608155914851421EPS$4.09$4.33$4.70$4.902018A2019E2020E2021ETotal Assets($bn)467.4479.5633.5643.6ROA1.48%1.45%1.54%1.58%ROTCE19.4%18.8%19.7%20.0%Fees as%of Total Revenue42%42%42%43%Efficiency Ratio54.4%54.3%53.5%51.7%CET1 Ratio8.9%9.0%8.9%8.9%Total Shares($mn)1608155919151817EPS$4.09$4.33$4.98$5.44Macquarie Research Super Regional Banks 25 February 2019 6 Not so fast-Comerica Although CMAs stock was up approximately 5%on the news of the BBT/STI merger(BKX was up 0.5%),we believe a hypothetical deal with CMA will be challenging partly due to a high P/TBV than STI prior to announcement(1.95x vs.1.72x)coupled with overreliance on buybacks for EPS growth and limited core franchise growth post Fed rate hike cycle.Moreover,CMAs footprint is divided between Michigan,Texas and California resulting in a challenging fit for meaningful cost saves for the potential acquirers.That said,we believe the hypothetical acquires(according to media reports)have some branch overlap in Michigan for PNC and California for USB.Not compelling USB/CMA combination is 1%accretive We analyse a hypothetical merger with USB and CMA with a similar structure and pricing of the BBT/STI deal.The purchase price is assumed to be a 7%premium to CMAs current value,or an implied price 2.64x its pro forma tangible equity for 4Q19 resulting in a goodwill and intangibles estimate of$9.3bn.Similar to the BBT/STI deal,we are assuming a 2%loan mark and core deposit intangibles.Also,we are assuming similar cost saves at 25%of CMAs estimated 2019 cost base.Although this is lower than HBAN and KEYs cost saves from in market FirstMerit and FNFG deal,it does feel modestly aggressive compared to the 27%projected cost saves on STIs of 28%given BBT/STI have 24%of their combined branches within 2 miles of each other.Importantly,CMA only has overlap with USB in California,which represents 17%of total branches,including heavily populated areas such as Los Angeles.CMA does offer an attractive footprint in Texas;however,this begs the question whether USB should put less capital at risk and look to buy a smaller independent bank headquartered in Texas.Macquarie Research Super Regional Banks 25 February 2019 7 What would a USB/CMA deal look