In the Hamilton Capital U.S. Mid-Cap Financials ETF (USD) (TSX: HFMU.U) and the Hamilton Capital Global Bank ETF (TSX: HBG) our exposure to the U.S. mid-cap banking sector is ~65% and ~48%, respectively (owing to the sector’s low dividend yields, Hamilton Capital Global Financials Yield ETF has just 10% exposure to U.S. banks).

In prior posts, we have highlighted our preference for the U.S. mid-cap financials sector over their large-cap peers for three reasons: (i) higher expected EPS growth (i.e., actively managed portfolio can emphasize higher growth regions/MSAs), (ii) greater interest rate sensitivity (on balance), and (iii) ongoing benefits of consolidation/M&A. Moreover, given that we view the U.S. mid-caps as one of the most attractive segments within the global financial sector, we launched HFMU.U, which is – to the best of our knowledge – the only pure-play U.S. mid-cap financials ETF globally[1].

It's 
world 
of 
opportunity.
HBG
Exposure 
to 
the 
very 
best 
of 
global 
banking.

In this post, we are providing two charts highlighting the pace of U.S. bank consolidation and the breakdown by market capitalization. The first chart “Total U.S. Exchange-Traded Banks” shows that there are just less than 400 exchange-traded banks in the U.S. as of December 31, 2016. It also highlights that the number of banks absorbed through consolidation averaged about 15 banks a year since 2011, for an overall decline of over 16%. 

u-s-bank-mergers-in-two-charts

The second chart shows the breakdown of U.S. banks by size[2] highlighting that the vast majority of publicly traded banks – i.e., all but 10 – are small or mid-cap. Not surprisingly, virtually all of the consolidation shown is taking place within these categories. We would also note that the sheer number of mid-cap banks – i.e., over 170 – provides substantial opportunity to gain exposure to higher growth regions/MSAs, including the U.S. Southeast and Southwest, where population growth can be more than 4x faster than the Midwest and Mid-Atlantic.u-s-bank-mergers-in-two-charts

Over the past few years, we have written often about the U.S. banking sector including the ongoing consolidation. Notes that may be of interest include:

Notes from the Field: “Follow the Sun”/Catching Up with U.S. Banks in Phoenix 

6%+ yield
from 
world 
class 
financial 
sector.
HFA
Dividends 
from 
Down 
Under.

Notes from the Field: Everything is Peachy in Atlanta 

Notes from the Field: U.S. Mid-Cap Bank Meetings in New York

Canadian Banks: Why U.S. Mid-Cap Banks are Easier to Acquire (than 10 Years Ago)

Notes from Florida Bank Tour: Commercial Real Estate lending and M&A under the Microscope

Notes from Florida: KBW Financial Services Symposium

Notes from Texas Bank Tour: Is This Time Different from Previous Downturns?

You might be surprised
by 
what 
the 
world 
has 
to 
offer.
HBG
Exposure 
to 
the 
very 
best 
of 
global 
banking.

U.S. Banks: Revisiting “100 Bank Mergers”, 3 Years Later

100 Bank Mergers 


Notes

1 Defined as those financial services firms with a market capitalization of between US$500 mln and US$20 billion
2 As of December 2017. Large-cap banks are those banks with a market cap above US$20 bln; mid-caps are between $500 mln and $20 bln; and small-caps are below $500 mln.

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