However analysts argue that consolidation in the sector is inevitable. "Negative operating leverage from record low interest rates and weak loan demand, should accelerate industry consolidation, in our view, as more banks realize they cannot deliver competitive returns on capital in this operating environment," Baird Equity Research analysts said in a report.
Baird expects US Bancorp (USB) and BB&T (BBT - Get Report) to capitalize on attractive opportunities while weaker regionals such as Synovus (SNV) and Regions Financial (RF - Get Report) are most likely acquisition targets.
1. Presidential elections: The Presidential elections could be a game changer for the financial services industry, although its impact will only likely be realized in 2013.
Analysts believe that the anti-Wall Street rhetoric in Capitol Hill would subside if Republicans take more control. "Historically banks have done relatively well in election years, regardless of the outcome," Barclays Capital noted in a report. Bank stocks have risen by an average 10% in the Presidential election years since 1937, double the S&P 500 average of 5%, the analysts noted. "Bank stocks rose in 10 out of the past 12 election years, outperforming in 8 of those. Furthermore, in each of the 4 years in which a Republican president unseated a Democratic one (1952, 1968, 1980, 2000) bank stocks finished higher (outperforming in 3 of those), rising an average of 19%, compared to the S&P 500's average 9% rise."RBC Capital analyst Gerard Cassidy is more explicit. "Should President Obama not be re-elected, the banking sector, one of the most vilified industries in Washington, D.C., would likely see its stock prices positively impacted by his loss." --Written by Shanthi Bharatwaj in New York
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