Bank Stocks Down | WGA Bank Top 100 Index: Q2 2025

R. Christopher Whalen
May 4
6 min read

May 5, 2025 | Premium Service | The new edition of “Inflated: Money, Debt and the American Dream,” is being released on Tuesday of this week. The second edition features a lot of original content throughout the book and a new introduction by David Kotok of Cumberland Advisors.

**Tomah Stream, Washington County, Maine**

The material on Henry Ford and his role in precipitating the Banking Crisis of 1933 in the first edition of "Inflated" is now published at greater length in “Ford Men: From Inspiration to Enterprise.” We appreciate all of the pre-orders and positive feedback from reviewers.

Below for subscribers to our Premium Service, we provide a detailed analysis for the results for rebalancing the WGA Bank Top 100 Index. In the Index for Q2 2025, we have dropped Discover Financial (DFS) and Heartland Financial (HTLF), which was acquired by UMB Financial (UMB) in January. The acquisition of DFS by CapitalOne Financial (COF) is scheduled to close later this month.

The acquisition of DFS by CapitalOne is a sad event. Discover Financial was one of the top performing banks in the US for many years, but part of that stellar performance may have come because CapitalOne was renting access to the payments rails of the smaller bank. We wrote about the logic of the DFS + COF transaction in a previous issue of The Institutional Risk Analyst (“Elizabeth Warren Opposed CapitalOne + Discover? Really?”).

The close of the UMB-HTLF transaction also makes us sad, but for a different reason. Readers will recall that at the time the transaction was announced, we were less that enthusiastic about the purchase (“Inflation & CRE Deflation Too? UMB Financial + Heartland = ?”). Why? Because in the course of more than a dozen acquisitions, the good people at Heartland have been diligently destroying shareholder value so that half of the equity purchased by UMB was intangible. Ooops.

To us, Heartland is an example of the diminution of value that often occurs when banks buy other average banks at excessive multiples of book value. As we learned working at the FRBNY years ago, they call it “book value” for a reason. HTLF was a peer performer, nothing more. As the illustration below illustrates, the shareholders of HTLD who sold into the pre-close strength got a far better deal than did the LT holders of UMB, which paid a significant premium to tangible book. Now UBM may seem bigger and have more capital, but on a tangible basis it now looks like HTLF.

UMB Financial Corporation

We wrote in May 2024: “Looking at the transaction with UMBF, we can't help but think that the officers and directors of HTLF are feeling a good bit of relief at the prospect of the acquisition. The value destruction illustrated by the large goodwill at HTLF as well as the negative AOCI position does not suggest good things ahead for UMBF if the purchase of HTLF proceeds.”

Now with the acquisition of Heartland and its substantial goodwill and intangibles, UMB is in an arguably weaker position. We wonder why regulators allowed this transaction at all. But then again, why did the Fed allow Chemical Bank to acquire Manufacturers Hanover in 1991? Both banks were arguably insolvent due to losses from LDC debts, but Fed Chairman Paul Volcker refused to let US banks write down the LDC debt. Yet the merger created the foundation for the eventual success of Jamie Dimon and JPMorgan decades later.

Just as the FDIC creates new equity from a systemic basis when it sells the assets of failed banks at a discount, federal regulators should subtract some portion of intangibles in bank M&A transactions to make sure than tangible capital is sufficient. This is a question that Federal Reserve Board Governor Michelle Bowman ought to ask her colleagues to discuss publicly.

Finally, we note that Block Inc. (XYZ) missed on revenue and earnings in Q1 2025, causing the stock to plummet -- again. If you ignore the tax benefit last quarter, the company’s results are going sideways. Even beloved Bitcoin revenue is down. Suffice to say that we have been mystified by the behavior of XYZ management for several years, going back to the idiotic 2021 name change from “Square.”

We last wrote about XYZ in February (“Logan Riffs on SOMA; XYZ and SYF Say No Recession Yet”): “We continue to wonder why the firm still dabbles in bitcoin trading given the volatility it introduces to the balance sheet and the distraction it provides from the rest of the business. Would any prospective acquirer want to take the risk of buying XYZ with its large principal position in bitcoin? Maybe that is the point. At some stage, however, XYZ management is going to come under pressure to sell if the performance of the stock does not improve.”

Of note, XYZ missed last quarter as well, causing the stock to tank. Our skepticism about the business model and management team remain. But in an effort to be constructive, we provide a big h/t to XYZ for its excellent financial disclosure, including the separate supplement with sequential historical data. Diligent IR folk at SoFi Technology (SOFI) and Goldman Sachs (GS) please do take note.