In less than a month, Trump will officially be inaugurated as the 47th president of the USA. The banking sector, especially regional banks, might become an important investment opportunity.

The Trump administration has previously made it clear that it intends to ease banking regulations, particularly for small and medium-sized banks, which could stimulate the growth potential of these institutions. Under a more relaxed regulatory environment, low interest rates, and economic stimulus measures, regional banks may welcome new growth opportunities.

Driven by both the Federal Reserve's rate cut trades and the Trump trade, U.S. regional bank stocks have shown strong upward momentum this year.

Among them, $First Citizens BancShares (FCNCA.US)$、 $First Horizon National (FHN.US)$ It has accumulated an increase of over 50% year to date.$M&T Bank (MTB.US)$ Up nearly 44%, $Citizens Financial (CFG.US)$ Up over 38%, $Huntington Bancshares (HBAN.US)$ Up over 35%, $Western Alliance Bancorp (WAL.US)$ 、 $Zions Bancorp (ZION.US)$、 $PNC Financial Services (PNC.US)$ Increased by approximately 31%.

Due to Trump's promise to create a more friendly regulatory environment, Wall Street is optimistic about the prospects of American regional bank stocks. Brokerage Raymond James Analyst Michael Rose stated that regional bank stocks will enjoy growth bonuses in an environment of relaxed regulation, increased leverage returns, and a steepening yield curve.

Barclays Analyst Jared Shaw remains optimistic about the future of the banking industry, believing that a good macroeconomic environment will promote growth andmergers and acquisitions., the positive impact on the regional banking sector will gradually become apparent.

How will Trump’s presidency affect regional bank stocks?

Based on the major policies and campaign proposals during Trump's previous term, it is expected that President Trump's term may have the following impacts on the American financial industry:

• 1. Relaxation of financial regulations

Trump may restore policies that relax financial regulations, especially the provisions of the Dodd-Frank Act regarding small banks. This will reduce regulatory burdens, increase banks' leverage, profitability, and dividend payments. While these measures can support bank growth, they may also increase the potential risks to the financial system, particularly the risk of a financial crisis.

• 2. Support for bank mergers and acquisitions

The Trump administration may take a more open stance toward approving large-scale bank mergers, encouraging further consolidation within the banking industry. Mid-sized banks often achieve higher capital returns due to economies of scale after merging. Large regional banks, such as $U.S. Bancorp (USB.US)$ 、 $Truist Financial (TFC.US)$ and $PNC Financial Services (PNC.US)$ This may lead to mergers that enhance market competitiveness and optimize resource allocation. This could trigger a wave of mergers and acquisitions in the banking industry, driving sector consolidation.

• 3. Loose monetary policy.

During Trump's campaign, he emphasized accelerating interest rate cuts and implementing a more expansionary fiscal policy to stimulate economic growth in the USA, thereby boosting credit demand and improving asset quality. Although rapid interest rate cuts may compress banks' short-term interest margins, in the long run, economic stimulus policies are expected to raise long-term interest rates, which will increase banks' profitability and returns on investment.

According to Piper Sandler analyst Nathan Race, the revenue growth potential for regional bank stocks is immense in the coming years, especially with the financial guidance for 2025. Race specifically noted that the recent normalization of the yield curve for U.S. Treasury bonds indicates that long-term interest rates have surpassed short-term rates, which will benefit the banks' profit model.

In summary, Trump's policies may create opportunities for profit growth for banks by reducing regulatory costs, encouraging mergers, and stimulating economic growth; however, these policies also bring financial risks, especially due to excessive deregulation.

However, it is worth noting that over the past month, while everyone in the market was discussing how Trump's economic blueprint will drive the USA, last week's hawkish remarks from Fed Chairman Powell brought inflation back into the focus of investors, leading to the largest market turmoil since the election day, with regional bank stocks in the USA significantly retreating.

Additionally, on December 24 local time, Bank of America and business groups filed a lawsuit against the Fed, accusing it of keeping the design process of the stress test standards confidential and lacking public participation, which led to significant and unpredictable fluctuations in bank capital requirements. This, in turn, undermined banks' ability to efficiently allocate capital, including lending to small businesses and other entities critical to U.S. economic growth and job creation. These groups stated that they do not oppose accepting stress tests, but rather seek to incorporate public participation into the process of formulating stress test standards under federal law.

On the 23rd local time, the Fed indicated that it is considering 'significant adjustments' to the annual stress tests for large U.S. banks, aimed at reducing the volatility of test results and increasing the transparency of the process, including allowing lenders to express opinions on the models they use, which is a significant victory for Wall Street banks.

How to invest in regional bank stocks.

JPMorgan Analyst Anthony Elian expressed optimism about the prospects of regional bank stocks, believing that the growth of loans and deposits, along with the expansion of net interest margins, will benefit the fundamental outlook for banks. He noted that since the U.S. election, investor interest in the regional banking sector has significantly increased; although large-scale collective buying has not yet occurred, market sentiment has started to improve.

Elian emphasized that the valuations of regional bank stocks remain relatively low, providing space for future growth. He listed some stocks to watch, including $Western Alliance Bancorp (WAL.US)$ 、 $First Citizens BancShares (FCNCA.US)$ and $Pinnacle Financial Partners (PNFP.US)$ 。

In addition, investing in ETFs can help investors reduce the risk of selecting individual stocks, providing more stable returns consistent with Index performance, and has a lower investment threshold. Major ETFs tracking USA regional bank stocks include: $Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$、 $Ishares Trust U.S. Regional Banks Etf (IAT.US)$ From the beginning of the year to now, they have increased by more than 19% and 24% respectively.

For investors seeking high-risk, high-return opportunities, leveraged ETFs are also a good choice. These ETFs amplify market fluctuations and bring higher returns, including: $Direxion Daily Regional Banks Bull 3X Shares ETF (DPST.US)$ 、 $TUTTLE CAPITAL DAILY 2X INVERSE REGIONAL BANKS ETF (SKRE.US)$ 。

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编辑/jayden