Midwest Banks Make a Splash in Finance

U. S. Bancorp, a bank based in Minneapolis, is making a big move. They are buying BTIG, a smaller investment bank backed by Goldman Sachs, for up to $1 billion. This deal is part of a bigger trend. Regional banks from the Midwest are taking a bigger slice of the investment banking pie. U. S. Bancorp is not new to this game. They sold their brokerage arm, Piper Jaffray, back in 2003. Since then, they have built up their capital markets business. They now make about $1. 4 billion a year from this sector. That's around 14% of their non-interest income. With BTIG, they will add about $750 million more in fees. This will bring them closer to their competitors, PNC and Truist, who get around 18% to 19% of their non-interest income from similar activities. The Midwest invasion of Wall Street is not just about U. S. Bancorp. Other regional banks like PNC and Truist are also making their mark. These banks are not just competing with big names like Goldman Sachs and JPMorgan. They are also taking business away from them. In 2008, independent shops like Evercore and PJT Partners had 19% of the mergers and acquisitions (M&A) fee pool. By last year, that number had grown to 41%.But it's not just the independent shops that are benefiting. Traditional lenders like Wells Fargo have also seen their share of the investment banking fee pool grow. At the turn of the century, they had about 9% of the $28 billion fee pool. By the end of 2023, that number had grown to 23% of the $68 billion fee pool. Over the same period, the five big U. S. financial shops lost 16 percentage points. However, this growth has not impressed investors. U. S. Bancorp, PNC, and Truist all trade at lower multiples of expected book value than they did two decades ago. Meanwhile, JPMorgan's valuation has nearly doubled. This shows that investors are not convinced by the diversification efforts of these regional banks. The competition between Main Street and Wall Street is heating up. Regional banks like U. S. Bancorp typically advise local banking customers with smaller deals and capital needs. They are not usually competing with the big players like Bank of America and Citigroup. But as Main Street grows bigger and busier, the chances for collisions with Wall Street increase.