Bank merger-and-acquisition activity, which has been light for a long time amid lofty interest rates and festering economic uncertainty, is unlikely to pick up anytime soon. But bankers point to some potential catalysts that could jump-start consolidation as early as next year.
First things first: Through July 26, only 50 bank deals were announced, according to S&P Global Market Intelligence. That was down from 96 deals in the same period last year. And 2022 was a slow year, with just 168 deals announced, down from 205 in 2021.
The Federal Reserve's campaign to curb inflation — involving 11 rate increases (so far) since early 2022 — stirred recession fears. The threat of a slowdown, in turn, increased the potential for loan losses, making bank buyers skittish about would-be sellers' credit quality. The macroeconomic backdrop also weighed on bank stocks and hindered buyers' ability to pay for acquisitions with shares. The
All of these factors linger and are keeping M&A in check.
"People are still a little nervous about all the uncertainty in the economy," Chuck Sulerzyski, CEO of the $8.8 billion-asset Peoples Bancorp in Marietta, Ohio,
Banks of all sizes are investing in ever-advancing technology to keep pace with customers' demands for digital services. Following the downfalls of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year, lenders also are
Against all of that, an increasing number of small banks are likely to pursue sales to larger players in an effort to quickly become more cost-efficient. Bigger banks will be seeking economies of scale, too, and be on the hunt to expand geographically and add new business lines, Tom Collins, senior partner in West Monroe's financial services practice, said in an interview.
"Banks will quite likely need to gain more scale — and quickly," Collins said.
He said that, at some point in 2024 or at least by early 2025, when economic clarity and steady deposit rates intersect, the abundance of incentives could drive "rapid and substantial" consolidation, sending deal activity to a pace well above this year and last.
Stacy Kymes, president and CEO of the
"M&A is going to be very difficult in this environment," he said in an interview. Yet he agreed that more consolidation over the long haul is inevitable. "It's a matter of timing."
Bruce Van Saun, chairman and CEO of the $223 billion-asset Citizens Financial in Providence, Rhode Island, shared a similar view.
"The moon and stars aren't really aligned right now" for strong M&A activity, he said in an interview.
Van Saun said that, in addition to issues created by high rates, bankers are concerned that regulatory scrutiny has increased after this year's banking crisis. He also noted that the Biden administration and some lawmakers are leery of banks getting bigger when there are lingering concerns about deposit stability and potential threats to credit quality. Several larger deals were delayed in the face of higher regulatory hurdles this year.
"I don't see a lot happening" for the foreseeable future, he said. But over the long term, perhaps late next year or by 2025, M&A could grow appealing again.
"When the winds shift and regulators return to fast-tracking deals," Saun said, "that's when things could happen."
