According to a fund manager who spoke to MarketWatch, despite a slower-than-expected start to deal-making and stubborn inflation, banks may still see more bank mergers and an uptick in capital markets activity.
“Speculation about a more positive banking environment that drove a rally in bank stocks late last year has not yet fully materialized in 2025,” said Cheryl Pate, senior portfolio manager at Angel Oak Capital Advisors.
She said that concerns about the effects of trade tariffs, stock market volatility, and DOGE budget cuts have caused investment-banking activity to be less than expected.
Despite these obstacles, negotiations should resume this year once these matters are more certain.
“I still think the capital markets rebound will be strong,” added Pate.
Along with M&A activity in the industry, banks are also benefiting from wider net-interest margins and an increase in loans.
“The fundamentals for banks are bullish this year,” she stated. “They can increase their profits by pulling a number of levers. The likelihood that they will see several expansions is higher.
As part of its overall bullish outlook on a recovery in deal-making from multiyear lows, the business has invested in Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS).
The prospect of more consolidation in the banking industry, which is partially a result of interest rate stabilization that clarifies asset values in bank portfolios and improves visibility of firm valuations, contributes to the bullishness surrounding banks.
“We think M&A is coming back in a meaningful way,” Pate stated. “It’s been quiet.”
Under the Trump administration, it is anticipated that federal authorities will approve bank and other mergers more quickly. In addition to the Federal Trade Commission, other federal agencies also investigate bank transactions.
Although larger regional banks may team up and smaller banks will attempt to make deals in order to gain scale, Pate is not anticipating megadeals among the biggest banks.
Due to their anticipated increases in net interest margin, the company also has shares in M&T Bank Corp. (MTB), Bank of America Corp. (BAC), and PNC Financial Services Group Inc. (PNC).
Angel Oak demonstrated their support for speeding up bank M&A by taking long positions in SouthState Corp. (SSB) and UMB Financial Corp. (UMBF).
“Both have a successful history as acquirers, recently closed acquisitions and could be beneficiaries in continued mergers among regional banks as potential buyers,” said Pate.
About $18 billion is managed by Atlanta-based Angel Oak Capital Advisors. In addition to privately held funds and individually managed accounts, Pate oversees the company’s Financial Strategies Income Term Trust FINS.
According to statistics from BondCliQ Inc., spreads on bank debt have increased against U.S. Treasurys as bank stocks have declined in recent weeks.
The spreads between Citigroup and Wells Fargo & Co. (WFC) have expanded the most, indicating that investors consider Citigroup’s debt to be riskier than others’.
When investors feel they should receive more compensation for the risk of taking on corporate debt, bond spreads increase; when they don’t, they decrease.
At the beginning of the year, investors in bank stocks were “excited” about the possibility of a rise in loan growth, a steeper yield curve, regulatory clarity, and a wave of mergers and acquisitions in the industry and among firms in general, according to Truist analyst David Smith.
“Two months in, none of these have played out in earnest yet,” he stated.
“While investors we speak with are still generally positive on banks, there is more caution than a month or two ago as the bull case becomes incrementally harder for many to make near term,” he stated.
According to him, the KBW Regional Banking Index XX:KRX and the KBW Nasdaq Bank Index BKX are both down roughly 6% from their 2025 highs.
