Keefe, Bruyette & Woods analysts believe that universal banks will return to M&A to build scale in high-return businesses as they exit a cycle of divestitures that responded to tighter post-financial crisis regulation.
They expect JPMorgan Chase & Co. and Goldman Sachs Group Inc. to be the most active buyers. KBW noted that Goldman Sachs wants to grow revenues by $5 billion by 2020 and that the company has made deals in the financial technology and investment management spaces.
KBW also believes that JPMorgan is more likely to be an active acquirer as it seeks to increase scale in payments, wealth management and asset management.
To pursue larger deals, banks could pause share repurchase plans to fund accretive transactions, the analysts noted. In 2019, KBW expects universal banks to repurchase $97 billion of shares and, in the near term, to rely on share repurchase for earnings growth. But over the long term — beyond 2019 — acquisitions could make more sense for earnings accretion, the analysts added.
The analysts wrote that Morgan Stanley and State Street Corp. have an "average" probability of ramping up M&A activity, while Wells Fargo & Co., Citigroup Inc. and Bank of New York Mellon Corp. have a "low" probability. Bank of America Corp. has a "very low" chance of doing a large deal in the near to medium term, the analysts wrote.