Merger Monday for Banks and Biotech

Summary

Bloomberg Intelligence Podcast

Episode Title: Merger Monday for Banks and Biotech
Date: October 27, 2025
Hosts: Scarlet Fu and Paul Sweeney

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Overview

This episode of Bloomberg Intelligence dives into the latest waves of M&A activity in both the regional banking and pharmaceutical biotech sectors, with additional coverage of the potential impact of Hurricane Melissa on Caribbean insurance markets. Senior Bloomberg analysts break down what’s driving these deals and discuss the strategic, financial, and regulatory implications for investors and sector players.

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Key Discussion Points and Insights

1. Banking M&A: Huntington’s Expansion into Texas

Guest: Herman Chen, Senior Analyst, U.S. Regional Banks
Segment Start: [01:36]

• Huntington's Deal Activity

  • Huntington Bancshares has just closed its acquisition of Veritex, marking an entry into Texas.
  • Now, it's doubling down by acquiring Cadence, which substantially increases its Texas footprint and provides exposure to other southeastern markets (e.g., Birmingham, Tupelo, Arkansas, Missouri).
  • “Texas is really the prize.” —Host [02:20]

• Super-Regional Status and Regulatory Impact

  • With these acquisitions, Huntington becomes a so-called “super regional,” operating in 21 states and crossing the $250 billion asset threshold.
  • This triggers heightened regulatory scrutiny, particularly around liquidity and reporting.
  • “It will clear the 250 billion asset mark, which is a step up in regulation... but overall shouldn't mean too much for Huntington.” —Herman Chen [02:38]
  • Anticipated deregulatory efforts from the Fed could work in Huntington’s favor.

• Broader M&A Wave

  • The environment, partially influenced by Trump administration policies, is conducive to more deals. Similar transactions include Fifth Third buying Comerica and PNC acquiring Denver First Bank.
  • “We are expecting some deregulatory efforts from the Fed... more transactions to come.” —Herman Chen [02:38]

• Strategic Upside

  • Huntington is shifting from its slow-growth Midwest base to higher-growth southern markets, aiming to boost its return on tangible equity by 200 basis points.
  • “The greater scale, the better growth demographics, really will fall to the bottom line.” —Herman Chen [03:40]

• Texas: Hotspot for Regionals

  • Surge of deals focused on Texas-based institutions: “That seems to be the area of choice for these regionals and we're seeing that activity really pick up.” —Herman Chen [04:32]

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2. Pharma M&A: Novartis Acquires Avidity Biosciences

Guest: Sam Fazelli, Director of Research - Global Industries, Senior Pharma Analyst
Segment Start: [07:27]

• Novartis Bags Avidity for $12 Billion

  • Acquisition aimed at replenishing Novartis’ late-stage pipeline amid major patent expiries (specifically Cosentix, which will lose exclusivity around 2029–2030).
  • “They need assets and products to feed it.... this is exactly what Novartis is doing. $12 billion for Avidity Biosciences.” —Sam Fazelli [08:00]

• Strategic and Financial Rationale

  • Avidity offers three rare disease products at different development stages—high strategic value for future revenue streams, less scrutiny on pricing since they are rare disease drugs.
  • Move is seen as a smart fit, both technologically and in terms of timing for sustaining Novartis’ growth.
  • "[This deal] tick[s] so many boxes that it was worth doing, particularly as it fits also with their internal assets and their approach to some of the other diseases." —Sam Fazelli [09:46]

• Deal Size and Strategy Shift?

  • Historically, Novartis has focused on “tuck-in” deals (<$5B). This acquisition is more sizable—does it signal a shift?
  • “...in my world, a tuck in is 3 to 5 billion dollars... But they all give you this caveat. We will be opportunistic.” —Sam Fazelli [09:46]

• Patent Expiries: Structural Industry Challenge

  • Multiple drug companies are grappling with waves of patent runoffs (“patent cliff”), but the process is normal; it helps governments finance new therapies.
  • “It’s not quite a cliff, it’s a hill that age... The companies get rewarded for 10 to 12 years, then it becomes generic.” —Sam Fazelli [10:54]

• Financial Impact

  • The deal will be earnings dilutive for Novartis in the near-term (2026), due to accounting for intellectual property rights; positive earnings contribution expected around 2029–2030 as acquired drugs come online.
  • “There will be dilution next year, but... positive contribution maybe from 27, 28 onwards, definitely 29, 30 as these drugs hit the market.” —Sam Fazelli [11:53]

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3. Insurance and Hurricane Melissa: Focus on Jamaica

Guest: Matthew Palazzola, Senior Analyst, PNC Insurance
Segment Start: [14:50]

• Hurricane Melissa Looms Over Jamaica

  • Hurricane Melissa—a Category 5 storm—threatens significant damage, potentially surpassing the last major storm of this magnitude (Hurricane Gilbert, 1988).
  • Data for Jamaica is limited; adjusted for inflation, previous major storm damages are in the “mid single digit billions”—Melissa could be worse.
  • “The way Melissa is shaping up could be a lot worse than that actually.” —Matthew Palazzola [15:22]

• Insurance Penetration and Risk

  • Low insurance penetration for Jamaican households means most damages will not be covered by insurance; the insured losses likely centered on key resorts or commercial properties.
  • “There’ll be a wide gap between the economic losses and insured losses... resorts and things like that will have insurance... but people’s homes... just don’t have insurance.” —Matthew Palazzola [16:29]

• Main Reinsurers at Risk

  • Most coverage heavily ceded (transferred) to big reinsurers, potentially including Lloyd’s of London, Bermuda-based companies, Swiss Re, and Munich Re.
  • “A lot of the business might not be written by the domestic companies... the Bermuda reinsurance companies... big European companies like Swiss Re, Munich Re...” —Matthew Palazzola [17:03]

• 2025 Hurricane and Insurance Market Trends

  • Overall, 2025’s hurricane season has so far been mild in the U.S.—resulting in lower catastrophe losses for insurers.
  • Despite low hurricane activity, insurance premiums remain inflated due to broader structural issues: cost inflation, building material prices, and regulatory environments in places like Florida and California.
  • “The issues behind home insurance haven’t necessarily been the large losses. It’s been inflation and building materials... poor regulation in certain markets...” —Matthew Palazzola [19:04]

• Property & Casualty Stock Trends and M&A Outlook

  • P&C stocks have underperformed despite favorable catastrophe trends; valuations remain high but fundamentals are softening.
  • M&A unlikely due to uncertainty over long-term liabilities: “Losses from the past have been higher than companies expected... biggest obstacle to M&A for PNC Insurance.” —Matthew Palazzola [20:43]

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Notable Quotes & Memorable Moments

• “Texas is really the prize.” —Host [02:20]
• “We are expecting some deregulatory efforts from the Fed... more transactions to come.” —Herman Chen [02:38]
• “The greater scale, the better growth demographics, really will fall to the bottom line.” —Herman Chen [03:40]
• “$12 billion for Avidity Biosciences. And then what they're getting here is three products that are at different stages of development but very soon to hit the market. All rare diseases.” —Sam Fazelli [08:00]
• “It’s not quite a cliff, it’s a hill that age. But this is, this is how it should be.” —Sam Fazelli [10:54]
• “The way Melissa is shaping up could be a lot worse than that actually.” —Matthew Palazzola [15:22]
• “There’ll be a wide gap between the economic losses and insured losses.” —Matthew Palazzola [16:29]

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Timestamps for Key Segments

• Regional Bank M&A (Huntington/Cadence): [01:36] – [05:08]
• Pharma/Biotech M&A (Novartis/Avidity): [07:27] – [12:30]
• Hurricane Melissa/Insurance Markets: [14:50] – [20:43]

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Episode Tone

The hosts and analysts maintain a conversational yet data-driven tone, blending analytics with clear, accessible explanations of industry trends and why they matter to investors and executives.

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Summary Takeaway

This episode is a deep dive into the forces reshaping key sectors via strategic M&A: banks are racing to scale up in growth markets amid regulatory and competitive pressures, while pharma giants like Novartis use bold acquisitions to defend pipeline gaps due to looming patent expiries. Meanwhile, insurers grapple with nature’s unpredictability and structural cost pressures, as Hurricane Melissa tests old risk models in the Caribbean. Packed with expert analysis, it’s essential listening for anyone following these dynamic industries.

Transcript

[Host]

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[Interviewer]

We had an M and A trade, a few M and A trades. Hit the tape here this morning. One including the regional bank business, maybe a super regional bank to be Herman Chen, Bloomberg Intelligence senior analyst for U.S. regional banks hunting to bank shares, the buying cadence. Herman, talk to us about this deal. What's going on here?

[Herman Chen]

So Huntington's fresh off of a deal in Texas. They just closed the Veritex deal, which added to basically entered Texas through the Veritex merger. And they're doubling down in Texas, adding Cadence, which is in the Houston market primarily, and also some slower gross Southeast markets like Birmingham, Tupelo. They have some exposure to Arkansas and Missouri, but Texas is really the prize.

[Host]

Texas is really the prize. And Cadence, I believe, has two headquarters, one in Houston, one in Tupelo. So Huntington now has presence in 21 states and it becomes a super regional. I love that term, super regional. What does that mean in terms of regular regulation and what kind of capital it needs to hold on its balance sheet?

[Herman Chen]

Yeah, so that's, that's a good question. It will clear the 250 billion asset mark, which is a step up in regulation. Really all that means is there's more regulatory reporting there's tougher regulation in regards to liquidity. But overall should it mean too much for for Huntington? And we are expecting some deregulatory efforts from the Fed later down over the next few months. So that should actually work out in Huntington's favor. And I think what we're seeing is that just the regulatory efforts increasing M and A transactions as a result of the Trump administration being very more open to dealmaking. And you're seeing that play out not only in this deal but also with 5th 3rd buying Comerica and also PNC buying a bank in Denver First Bank. So more transactions to come.

[Interviewer]

Wow. What's it what's the upside for Huntington bank shares here in getting bigger?

[Herman Chen]

Yeah. So they are doubling down in higher growth markets. Right. So Huntington is based mostly in the Midwest, upper Midwest, slower growth demographic Veritix. They've focused on not only hiring folks in national businesses but also expanding in areas like the Carolinas. They were doing an organic push in Texas before the Veritex deal. So the management team is being much more aggressive and they talked about improving their return profile, increasing their return on tangible equity by 200 basis points over the medium term. So the higher, the greater scale, the better growth demographics really will fall to the bottom line.

[Host]

So what I found interesting in this, Herman, is that earlier this year Cadence bought another bank industry bank shares. Who's a buyer, who's a seller in this great regional bank M. And a thing that we're seeing.

[Herman Chen]

Yeah, I think what you're seeing today is and I'm just looking at the carry index and all these Texas based institutions that are part of that are getting bid up things like prosperity First Origin. These are we've seen a number of bank deals in Texas, both larger and smaller. Remember Comerica is a Texas based bank as well. So these are, that's that seems to be the the area of choice for these regionals and we're seeing that activity really pick up.

[Interviewer]

Stay with us. More from Bloomberg Intelligence coming up after this.

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[Interviewer]

Novartis agrees to buy Avidity in a $12 billion biotech deal. Sam Fazelli, you became an analyst. You should have become a banker. I don't know what you were thinking back in the day. Sam Fazelli, director of research for Global Industries and a senior pharma analyst. Folks, he's one of the best out there on the street or in the city of London, as they say, for Bloomberg Intelligence. Is this just another deal kind of right out of central casting? Sam Pharma buying biotech.

[Matthew Palazzola]

Yeah. Well.

[Sam Fazelli]

So Paul, before we do that, can I just make sure that when we come back in our next life, can I work with you?

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[Sam Fazelli]

Both do this together and just, you know, go and no, but look, pharma companies, the story is similar here. We have a company here, Novartis, that's doing, doing okay. They have a patent expiry that they're dealing with now. Remember that phrase it's always the one that rears its ugly head eventually, which is good for consumers and drug budgets, but obviously in the end bad for the top and bottom line of pharma companies. They have another drug that's really big, expected to hit about $7.4 billion of sales by 2029, 2030, called Cosentix, that's going to go off patent. So what do they need? They need assets and products to feed it. They do their own R and D. But here they also have an opportunity to go and get stuff from biotech companies, which is exactly what Novartis is doing. $12 billion for Avidity Biosciences. And then what they're getting here is three products that are at different stages of development but very soon to get to, to hit the market. All rare diseases. So it's one that's harder for people to argue against in terms of price, etc. And it will help them with that post 2029, 2030 revenue growth and earnings growth. So pretty much fits perfectly in this sweet spot of what they need and what this company and for their growth and also their technology platforms.

[Host]

Sam, you laid out beautifully strategically why Novartis is buying Avidity. The CEO of Novartis, Vas Narasimhan, has been making some deals, but mostly they've been focused on deals under $5 billion. Regulus Therapeutics he bought for 1.7 billion. And those therapeutics also in that neighborhood is this purchase, this $12 billion purchase. A shift in strategy?

[Sam Fazelli]

Yeah, I mean it's so hard. As analysts, we love asking pharma companies, so what kind of deals are you going to be doing? And you go back and look at the Q2 results. Oh, we like tuck ins, etc. Right. And here we go. I mean, you know, in my world, a tuck in is 3 to 5 billion dollars, 2 to 4 billion dollars, that sort of size. So. But they all give you this caveat. We will be opportunistic. And I think here there was an opportunity, an opportunity that came up to access some very novel technology. I have to say it's really interesting what these guys are doing and it's late stage enough for it to make a difference to the bottom line of the company. And it's not often you get that mix. So I think Novartis decided this is this tick so many boxes that it was worth doing particularly it fits also with their internal assets and their approach to some of the other dise. So this is really pretty good fit.

[Interviewer]

Sam, is the patent runoff or exploration for this industry, is it abnormally high these days or is this just kind of normal course of business? Because it seems like we hear about it more and more over the last several years.

[Sam Fazelli]

Well, the companies have got bigger, there's broader pipelines and there was a period where it was we had the patent cliff in the 2010, 1112 time period. I don't remember exactly. It was a while ago, ago now. And now we have another it's not quite a cliff, it's a hill that age. But this is, this is how it should be. These companies get rewarded with reasonable pricing for the 10 to 12 years and then it becomes generic so that it creates more space in the drug budgets for the governments to pay for the next good drug. So I don't think there's anything new here. We just, it varies by company by company.

[Host]

Sam, we know that Novartis is going to be reporting earnings tomorrow, I believe, and it's already raised its profit outlook, I believe, two times. What are you anticipating? Is it how much is it going to tell us in terms of whether this deal, this avidity deal will add to earnings in the near term yet?

[Sam Fazelli]

But they already told us that they think that it's going to be clearly dilutive next year. And of course as soon as you do these deals, a large amount of the value goes into what's called IPR and which, which you have to charge to your pnl. You can't just put it onto goodwill anymore and just live with that as an intangible. So here there will be dilution next year, but I think they could start seeing some at least positive contribution maybe from 2728 onwards, definitely 29, 30. As these drugs hit the market. Of course they have to still get to the market and they have to be successful. But the drugs are looking really interesting and the data is looking very powerful.

[Interviewer]

Stay with us. More from Bloomberg Intelligence coming up after this.

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[Host]

All right, let's talk about what's happening in the Caribbean. Hurricane Melissa plowing towards Jamaica. It's a powerful Category five storm, the third Category five storm this Atlantic season, and Melissa threatens to bring widespread destruction to the island. Matthew Palazzola has been monitoring this development. He is the Senior Analyst of PNC Insurance for Bloomberg Intelligence and he joins us now with more. Matt, good to speak with you. When you try to figure out what kind of economic damage this storm could wreak, what historical analogs are you using?

[Matthew Palazzola]

Yeah, so it's a lot easier for the us we have a lot more data, a lot more storms for this one. The method we use is the same. We look at older storms, older hurricanes, and we try to see what they did. We adjust for property values, inflation and try to come up with something. The issue has been there haven't been a lot of major hurricanes that have made landfall on Jamaica. There's really only two since 1980 actually hit the island. A bunch of passed. The one that we're looking at is 1988 Hurricane Gilbert and that one, there's not great insurance data, there's not great damage data. The best we can find was 100,000 homes wiped out. Power and communication killed 45 people. The economic damage inflation adjusted maybe in the mid single digit billions. The way Melissa is shaping up could be a lot worse than that actually.

[Interviewer]

So in your note you're saying that Jamaica has a low insurance penetration and. But what coverage is written there is heavily ceded. What does that mean?

[Matthew Palazzola]

So that means that it's your, your favorite business. Parts heavily ceded to reinsurance.

[Interviewer]

That's where those guys.

[Matthew Palazzola]

So you know, it's Talking about the 100,000 homes destroyed in Gilbert. That's where the low insurance penetration comes in. So people's homes there, they just, they don't have insurance on them. So there'll be a wide gap between the economic losses and the insured losses. So that's kind of a real unfortunate aspect of this. Like the resorts and things like that will have insurance on them. That'll be the majority of the insured losses. But so that's what we're saying with the low penetration and even all any of the business there is heavily ceded to the reinsurance market.

[Host]

So which reinsurers then are exposed, do you think?

[Matthew Palazzola]

So I don't, I don't have specific names to be a real remiss. You hear about Lloyd's of London kind of does, you know, one off or special risks like this. So you might have a big, a big resort that might, you know, have a policy with them. So a lot of the business might not be written by the domestic companies we cover. The Bermuda reinsurance companies, I wouldn't be surprised if they had some, the big, big European companies like Swiss Re, Munich Re. So those are kind of the usual suspects. But I wouldn't ascribe losses to any of them just yet.

[Interviewer]

When I owned a home in California, it got to the point where the only place we could get home insurance was Lloyd's of London.

[Host]

Really.

[Interviewer]

I mean the same people who insure, you know, tankers going through the Strait of Hormuz. That's who I had to go to.

[Host]

Well, no one's even doing that now. You only have the state insurer as the lender of insurer of last resort at this point.

[Matthew Palazzola]

I think mine is like Joe's Insurance of South Jersey. Only one.

[Interviewer]

Exactly. Talk to us about the hurricane season. For from your perspective, it doesn't seem like it's been that bad.

[Matthew Palazzola]

No, it's been, it's been quite good for, for, you know, people who suffer from hurricane losses and for insurance companies. So very mild, I think minimal US Activity. We look at catastrophe loss estimates for, for our companies. We started off the year with the wildfires and I said, oh no, like this is going to be bad. We're going to have, you know, major, another major hurricane. It was going to be pretty significant. Third quarter was very mild. We've only seen a couple of companies report earnings so far. Those have been good. The catastrophe loss have been very low. So hurricane season mild. This is pretty rare to have a major hurricane this late. We did have Hurricane Sandy was around this time when it hit. But the hurricane season technically runs through November. But it's pretty rare for major storms to hit that late.

[Host]

Yeah, hurricane season officially ends November 30th, so we just have to get through the next month or so. Matt, if you have a mild hurricane season, does that mean people's insurance premiums won't go up? That, that stays static?

[Matthew Palazzola]

Probably not asking for rent? Yeah, no baloney on that one either. But yeah, the, the, the issues behind home insurance haven't necessarily been the large losses. It's been inflation and building materials. It has been kind of poor regulation in certain markets like Florida and California and causing reinsurance rates to go up. So the things that are driving that hasn't necessarily been these, these large losses.

[Host]

When is the next wildfire season or is there even a wildfire season or is it kind of year round now?

[Matthew Palazzola]

Yeah. So in California, there are times where the Santa Ana winds are stronger. I don't have the exact dates off the top of my head. There kind of are seasons to it, but you know, they could break out kind of at any time.

[Interviewer]

How are the property and casualty stocks doing this year?

[Matthew Palazzola]

Yeah, not, not great. So, you know, despite the mild hurricane season, good jumps in book value, good ROEs. The fundamentals are I think, past the peak. So the valuations of these stocks on a price to book basis usually peak before their roes. The roes have probably peaked. It's tough to see, I keep saying it, and they keep incrementally being a little bit better, but it's tough to see their underwriting get better next year. Interest rates clearly are at least going slightly down step by step. The fundamentals are not great. Valuations were high, so going into the year it was not great for performance.

[Host]

Does that mean there's going to be M and A in this sector?

[Matthew Palazzola]

Probably not. So the issue there is these companies have reserves, right? So we write liability business for things that happen and it could impact me many years in the future. What has been happening is those losses from the past have been higher than companies expected. So you'd be remiss to want to buy another company and have this book a business that could be worse than you expected. It's usually the biggest obstacle to M and A for PNC Insurance.

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