The U.S. finance sector in 2011 will stop stockpiling money and start spending it, and that will include non-bank acquisitions among Big 4 banks Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, analysts for Keefe, Bruyette & Woods said at a Dec. 9 outlook breakfast.
Two years after the financial crisis, pent-up demand for consolidation will finally be unleashed with a shift to capital deployment and away from capital accumulation, according to the financial-services analysts on KBW's North America Equity Research team.
Because the move toward global regulatory standardization has stalled, nations will become more inward focused—and for the United States, that means big financial institutions can deploy capital, especially now that the elections are past and a new Congress will take over in January.
"Capital markets will be the strongest area for growth in 2011, in our opinion, while bank loan balances will be the greatest area of weakness," the analysts wrote in 2011 outlook report. "Regulatory pressures on the industry will remain high with the implementation of the Dodd-Frank bill. However, onerous implementation of regulations will be constrained as a result of recent changes in Congress."
A continuing negative, however, will be new loan demand, which is likely to stay tepid in 2011.
"Continued consumer deleveraging will likely result in slow growth in the U.S. in 2011," the analysts predict. "Our forecast is that U.S. gross domestic product (GDP) will grow slightly less than 2% next year and the unemployment rate will fall to 9.1% by year-end 2011. We do not expect debt-to-income levels to stabilize before year end, with continued high savings rates extending into 2012."
In their view, capital redeployment will focus on increased dividends, share repurchases, and mergers and acquisitions. Lending and growth opportunities for financials will be constrained, however, by the U.S. economic recovery's slow pace.
"Too big to fail is going away," asserted KBW Chief Equity Strategist Fred Cannon at the breakfast, adding that large banks such as Bank of America (BAC),
