BREAKINGVIEWS-Boutique bank deal energizes heartland finance

By Jeffrey Goldfarb

NEW YORK, Jan 26 (Reuters Breakingviews) - The corner of Main and Wall streets is getting busier. Just look at Minneapolis-based U.S. Bancorp’s USB.N deal to buy Goldman Sachs-backed BTIG for as much as $1 billion to expand in trading and deal advice. For all the attention paid to rainmakers like Blair Effron and Ken Moelis, whose boutiques have muscled mostly into M&A, it is U.S. regional lenders that have quietly grabbed an even bigger cut of investment banking fees.

In some ways, U.S. Bancorp is catching up to the crowd. It offloaded brokerage Piper Jaffray, now Piper Sandler PIPR.N, in 2003, five years after joining an acquisition spree that ended badly for many banks. Since the financial crisis, it has built a capital markets operation, anchored in fixed income, with some $1.4 billion of annual revenue, which accounts for about 14% of U.S. Bancorp’s non-interest income. By adding BTIG’s $750 million or so of largely equities-generated fees, boss Gunjan Kedia will grow that slice, getting closer to the 18% or 19% share at peers PNC Financial Services PNC.N and Truist Financial TFC.N, respectively.

Along with U.S. Bancorp, that Pittsburgh- and Charlotte-based duo helped lead the heartland invasion of lower Manhattan. Indie shops such as Evercore EVR.N and PJT Partners PJT.N stole a march on Goldman Sachs GS.N and JPMorgan JPM.N, surging from a collective 19% of fees earned on completed U.S. mergers in 2008 to 41% last year, according to LSEG. Yet the country’s more traditional lenders pocketed a bigger share of the broader market.

This scattered bunch, which includes the giant Wells Fargo WFC.N, collected about 9% of the $28 billion investment banking fee pool at the turn of the century. By the end of 2025, its share swelled to 23% of the $68 billion shelled out by U.S. clients. Over the same span, the five big U.S. one-stop financial shops lost 16 percentage points.

Flyover country's diversification has failed to impress investors, however. U.S. Bancorp, PNC and Truist all trade at lower multiples of expected book value than they did two decades ago, while JPMorgan’s valuation has nearly doubled.

The two groups are not often competing for the same business, of course. U.S. Bancorp and its ilk typically advise local banking customers with smaller deals and capital needs than corporate goliaths that hire commensurately sized consiglieri like Bank of America BAC.N and Citigroup C.N. PNC’s Harris Williams, for example, helped Purell maker GOJO last week with its $2 billion sale to cleaning-products supplier Clorox, which enlisted Centerview. Even so, the bigger and more bustling Main Street gets, the greater the chances for Wall Street collisions.

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CONTEXT NEWS

Regional lender U.S. Bancorp said on January 13 that it had agreed to buy banking and trading boutique BTIG for as much as $1 billion to expand in M&A and equities.

Under the terms of the transaction, U.S. Bancorp will pay $725 million in cash and about 6.6 million in shares upfront, with an additional $275 million in cash payable over three years, contingent on hitting certain performance targets. The addition of BTIG, founded in 2002, will bring U.S. Bancorp about $750 million of mostly fee-based revenue annually, it said.

Goldman Sachs, which invested in BTIG in 2007, is advising the firm on the deal.