The Urge To Merge

When the banking crisis occurred during March, we concluded that the Fed's emergency liquidity response would contain the problem. We predicted that investors soon would be scrambling to determine which regional banks might be acquired rather than worrying about which of them might be seized by banking regulators. We argued that the higher costs of regulation that would soon be imposed on the smaller banks would force the industry to consolidate. We've been recommending overweighting Financials since then.

According to a post by CNN's Matt Egan, Treasury Secretary Janet Yellen in a May 18 meeting with the CEOs of large banks said that more bank mergers may be necessary as the industry continues to navigate through the crisis. On Tuesday, we learned about a possible merger between PacWest and Banc of California, creating one of the largest banks by deposits in California.