U.S. Banks Attract Investment Managers Seeking Better Returns

Canadian bank stocks have experienced significant gains over the past year, but investment managers are now looking south of the border for better returns. According to Rob Lauzon, chief investment officer at Middlefield Ltd., U.S. banks, particularly regionals, are attractive due to their lower valuation multiples and potential benefits from deregulation and merger-and-acquisition activity.

Lauzon notes that U.S. bank stocks have an easier path to higher loan growth, given the country's growing economy, which is twice as fast as Canada's. He also points out that new proposed rules to reduce cash buffers will free up capital for banks to grow their businesses.

U.S. bank deregulation is expected to favour mergers, and Lauzon predicts another wave of deals after the mid-term elections. He holds four U.S. regional banks in his Middlefield Income Plus Class Fund, including First Horizon Corp., Wintrust Financial Corp., Valley National Bancorp, and Old Second Bancorp.

Maggie Meng, a senior investment analyst at Toronto-based Brompton Funds Ltd., is more focused on the fundamentals and growth prospects of U.S. regional banks than on takeover potential. She notes that commercial and industrial loans are a key driver for these banks and points out that they have been improving their businesses and cutting costs.

The Brompton North American Financials Dividend ETF holds U.S. large-cap bank stocks, including JP Morgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., and Morgan Stanley. Meng also notes that these banks are more exposed to the AI investment supercycle from loans to AI-driven companies and as intermediaries for IPOs.