For the club of regional banks that offer investment banking services, there's reason to take a bow — but perhaps a quick one.

SunTrust Banks in Atlanta, KeyCorp in Cleveland, Citizens Financial Group in Providence, R.I., and PNC Financial Services Group in Pittsburgh each reported double-digit percentage growth in investment banking income in the first quarter. Citizens Chairman and CEO Bruce Van Saun could have been speaking for the capital markets operations of any of those companies when he said "it was an exceptionally strong quarter" during a conference call this week with analysts.

“The market conditions were very favorable, and we hit the ball out of the park,” Van Saun said.

The i-banking boost was timely considering that commercial loan demand is still spotty and rates remain low in historical terms even after recent Federal Reserve actions. Yet the celebration has to be tempered by the political realities of the day.

Policymakers are debating again whether to resurrect the Glass-Steagall Act, which once separated commercial and investment banking. Such a change would primarily affect the biggest banks, but it would also result in lost income at affected regional banks.

In the meantime, regional banks are counting on investment banking to help carry the load until rates rise and net interest margins fatten.

In the first quarter, capital markets fees at Citizens rose 92% from a year earlier to $48 million. KeyCorp’s investment banking income rose 79% to $127 million; SunTrust’s increased 42% to $128 million; and PNC’s rose 63% to $247 million.

Regional banks made a concerted effort during the recession to build up their investment banks, and it is now paying off, said Vincent DeAugustino, an analyst at T. Rowe Price.

“They built industry teams — you may have a telecom team or an energy team — and that lets you have real conversations with those clients, instead of having just generalist relations,” DeAugustino said. “It allows the regional bank to grow up with the client and keep offering them services. You hate to see those clients grow out of the bank.”

Within the investment banking world, the business of giving advice on mergers and acquisitions was one of the strongest contributors to regional banks’ results in the first quarter, said Gerard Cassidy, an analyst at RBC Capital Markets.

“This was more unique to the regional banks,” Cassidy said. “The largest investment banks did not point out [M&A] as a factor as much as the regionals.”

About 53% of more than 600 executives at middle-market companies expect to be involved, or are already involved, in a deal this year, according to a recent survey conducted by Citizens Commercial Banking, its investment bank group. That was up from 34% in Citizens’ survey last year.

SunTrust Robinson Humphrey was lead adviser in August to Sovran Self Storage in its $1.3 billion acquisition of LifeStorage. And KeyBanc Capital Markets was named Investment Bank of the Year in 2016 by Mergers & Acquisitions, a sister publication of American Banker, due to its strength in advising private-equity firms.

“M&A, a business which takes a long time to develop … has been the key area of investment for us,” SunTrust Chief Financial Officer Aleem Gillani said during Friday’s call.

Deals weren’t the only bright spot. Securities transactions helped regional banks and Wall Street titans last year. Citizens specifically cited loan syndications and bond underwriting as drivers of its growth.

“There is a little bit of the dynamic of rates going up and clients wanting to lock in lower rates now,” said Devin Ryan, an analyst at JMP Securities.

Some investment banking business may be trickling down to regional banks as the largest investment banks have been cutting ties with their smallest clients. Barclays last year planned to dump 7,000 smaller clients as it focused on more profitable customers, Bloomberg News reported in December.

It’s debatable how much the likes of SunTrust or KeyCorp may be swiping market share from someone like Goldman Sachs, DeAugustino said. It is probably more likely to happen after the economy shows more improvement.

“When the economic environment picks up, the biggest banks will focus on their best relationships, and there’s only so much time in the day” for smaller clients, he said.

Cassidy also discounted the notion that the regional banks are gaining business from Wall Street’s largest players.

“I would be surprised if the big banks are kicking out cash-paying customers,” Cassidy said. “Although maybe [the large banks] are not pursuing [smaller clients] as aggressively as they once did.”

As regional banks enjoy their investment banking results, it is possible that the joyride could be cut short. National Economic Council Director Gary Cohn this month said he supports a modernized version of Glass-Steagall, backing comments previously made by other Trump administration officials.

A revival of Glass-Steagall is a long shot, but it’s likely to remain an agenda item, and bankers must still take it seriously, Cassidy said.

“It’s a very good political topic, and politicians love talking about it,” Cassidy said. “It’s the 1% versus the 99% argument, and it scores political points.”

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Andy Peters

Andy Peters

Andy Peters writes about regional banks, consumer finance and debt collections for American Banker.