Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

U.S. banks finally have some currency, and not just the kind that sits in vaults. 

Since the U.S. election earlier this month, the KBW Bank Index has climbed some 14 percent on the expectation that higher earnings are in store thanks to a pro-growth Trump administration and its promises of decreased regulation and tax reform. By another measure, the index's price-to-earnings multiple has expanded to roughly 15 from about 13 before Nov. 8.

This development could unlock the M&A gates. Such a lift gives acquirers additional firepower to seal stock-based deals, and there's a better chance their offers will meet sellers' price expectations, according to Compass Point analysts.

New Heights
Higher valuations could lead to mergers and acquisitions among small and midsize banks
Source: Bloomberg

So, does a wave of consolidation among small and midsize lenders beckon?  Already, a couple of transactions have crossed the tape, and in both cases acquirers leaned heavily on their own stock. Last week, Independent Bank Group Inc. agreed to buy Carlile Bancshares Inc. for $434 million. Just days earlier, First Interstate BancSystem Inc. said it would buy Cascade Bancorp in a deal valued at roughly $570 million.  

More to Come?
U.S. bank and thrift deals may jump if the recent lift in valuations draws acquirers off the sidelines.
Source: Compass Point, SNL Financial
*2016 data through 11/25

Unfortunately for many of the largest would-be players, some like KeyCorp are digesting recent deals of their own. Others are benched from the action for now. Regions Financial Corp. and Fifth Third Bancorp., whose stocks have climbed more than 18 percent since Nov. 8, both hold "needs to improve" ratings under the Community Reinvestment Act. Until those ratings are upgraded, they are restricted from merging with or acquiring other financial institutions. 

Winners are Grinners
These banks have rallied the most since Donald Trump won the Nov. 8 election, although a few are precluded from pursuing M&A
Source: Bloomberg

The same goes for M&T Bank Corp., whose shares have gained more than 13 percent since the election. It must wait to get the green light from the Federal Reserve because it's restricted from expansionary activities until its "letter of agreement" with the regulator concerning its anti-money laundering and Bank Secrecy Act programs is lifted. For similar reasons, U.S. Bancorp, whose shares have risen almost 10 percent since Trump's surprise victory, is hamstrung from dealmaking until a consent order with the Office of the Comptroller of the Currency is lifted. 

Their peers, on the other hand, may find money burning a hole in their pockets.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Regulators have assured that consolidation among large banks is off the table.

  2. Based on where First Interstate BancSystem's shares were trading on Tuesday morning. Also, the Carlile Bancshares deal is worth closer to $550 million, based on the bump in Independent Bank Group's shares. 

To contact the author of this story:
Gillian Tan in New York at

To contact the editor responsible for this story:
Daniel Niemi at