U.S. bank merger-and-acquisition activity accelerated in August in what has otherwise been a quiet year for dealmaking amid recession worries, weakened financial stocks and heightened regulatory pressure.
Eighteen banks announced plans to sell themselves last month, the busiest month since July 2022, according to S&P Global Market Intelligence data. They were the bulk of the 26 deals unveiled in the first two months of the third quarter. There were 20 deals involving bank targets in the first quarter and 25 in the second quarter.
"August was definitely more active than what we've been seeing recently," Jacob Thompson, managing director of investment banking at Samco Capital Markets, said in an interview. "I think buyers and sellers are becoming a little more comfortable with this environment — figuring out how you can navigate it, you could say.
"Eventually," Thompson added, "you realize there are still reasons to pursue a deal, and you get to a point where you do it or you don't. I think there's some pent-up demand and people are getting used to a new normal and they are starting to pull the trigger on some of these transactions."
Inflation fueled by the pandemic and Russia's invasion of Ukraine in 2022 led the Federal Reserve to ratchet up interest rates to rein in soaring prices. Worries about a
Additionally, some would-be buyers moved to the sidelines after elevated regulatory scrutiny ordered by
Then, earlier this year, the failures of Silicon Valley Bank and Signature Bank in March — followed by First Republic Bank in May — added uncertainty about the industry and ignited worries about the sustainability of deposit levels.
Bank stocks have suffered since this year's banking crisis began, with the KBW Nasdaq Bank Index falling about 20% through the first eight months of 2023. When banks' shares are down, it makes it more difficult to strike deals paid for with stock.
To be sure, deal activity remains relatively light this year.
There were 71 bank deals announced through August, setting a pace of about 108 transactions for the full year. The total value of deals announced this year was $35 billion as of Aug. 31.
By contrast, there were 204 deals announced in 2021, with a cumulative value of $591 billion, according to S&P.
Despite the lull, more deals are said to be coming together. After meeting with prospective bank buyers in recent weeks, D.A. Davidson analyst Manuel Navas said "the benefits of scale" are top of mind for them, while would-be sellers are expected "to become more motivated in the medium term."
This week, the $21.6 billion-asset Eastern Bankshares in Boston agreed to acquire the $5.5 billion-asset Cambridge Bancorp in Massachusetts, the parent of Cambridge Trust Co.,
Thompson said deal conversations are always ongoing and August may be a preview of heightened activity.
There are many potential catalysts, Thompson said. Small banks, struggling to keep up with the technology spending of larger banks and intense competition for deposits, may look to join larger banks to create more efficient digital offerings and to contain funding costs.
Larger community and regional banks, meanwhile, are eager to broaden their deposit and loan portfolios to strengthen interest-income growth, diversify funding sources and protect credit quality.
Many banks are eager to get bigger to absorb regulatory costs more easily, too.
"All of that said, you've still got the same headwinds. There's still economic uncertainty, high rates, some inflationary issues, depressed stocks," Thompson said. "On the other hand, when you see a deal you like, one you are confident can work, I think banks are starting to ask, 'if we don't do this now, who knows what's going to happen in 2024, an election year. So if it makes sense, let's get this done while we can.'"
