Fifth Third Bank logo is seen in this illustration taken, April 23, 2024. REUTERS/Dado Ruvic/Illustration

(Reuters) -Fifth Third on Monday agreed to buy regional lender Comerica in an all-stock deal valued at $10.9 billion, creating the ninth-largest U.S. lender with a robust presence in the Midwest.

Regional lenders are looking to diversify revenue streams, strengthen balance sheets and expand into faster-growing markets as they recover from an industry-wide crisis in 2023 that shook investor confidence and exposed the risks of bank runs and troubles in commercial real estate.

Analysts have said consolidation is crucial for smaller lenders to compete with the nation's largest banks, with several banks looking to take advantage of a potentially lighter regulatory environment under the Trump administration.

Comerica shareholders will receive 1.8663 Fifth Third shares for each Comerica share, valuing the deal at $82.88 per share based on Fifth Third's closing price on October 3.

Shares in Comerica were last up 12% before the bell, while Fifth Third fell 3%.

"Record bank stock prices have also allowed for a greater currency to do deals, and today's announcement will likely encourage more boardroom discussions about possible tie-ups, both large and small," said Stephen Biggar, analyst at Argus Research.

The S&P 500 Banks Index has surged nearly 21% this year, outpacing the benchmark S&P 500's roughly 14% rise.

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Mergers and acquisitions have become crucial for regional lenders looking for a competitive edge in a highly saturated U.S. banking market.

The latest deal expands Fifth Third's reach to 17 of the 20 fastest-growing U.S. markets, including parts of the Southeast, Texas and California, and by 2030, more than half of its branches are expected to be located in these regions, it said.

"This combination marks a pivotal moment for Fifth Third as we accelerate our strategy to build density in high-growth markets and deepen our commercial capabilities," Fifth Third CEO Tim Spence said.

Many lenders are looking to build larger, more diversified franchises with steadier revenue from businesses such as wealth management, payments and treasury services, as interest income gets squeezed by shifting Federal Reserve policy.

Comerica CEO Curt Farmer will assume the role of vice chair in the combined company, while Peter Sefzik, its chief banking officer, will lead Fifth Third's wealth and asset management business.

The companies expect to have two $1 billion recurring and high return fee businesses - Commercial Payments and Wealth and Asset Management, following the deal.

The deal is expected to close by the end of the first quarter of 2026, after which Fifth Third shareholders will own about 73% of the combined company.

(Reporting by Manya Saini and Arasu Kannagi Basil in Bengaluru; Editing by Arun Koyyur)