Is the megadeal between Capital One Financial and Discover Financial Services a harbinger of more large-bank acquisitions in 2024? It depends whom you ask.
In remarks at an industry conference this week, regional banking executives offered mixed views on the prospects for additional big transactions.
Among the banks that appeared at the Bank of America Financial Services Conference, the hungriest for a deal seemed to be
PNC Chief Financial Officer Robert Reilly pointed to the fallout from last spring's regional bank failures as proof that size brings clear advantages.
"We saw in real time, in March of last year, a movement to the sentiment, particularly in corporate treasurers with uninsured deposits, that bigger is safe," Reilly said. "We were the beneficiary of that."
PNC had total average assets of $562.3 billion last quarter, which made the Pittsburgh-based bank the eighth-largest U.S. banking company.
Its CEO, Bill Demchak, has spoken recently about the advantages of scale in the banking business, as well as about
When Reilly was asked about the desirability of a deal for a $100 billion-asset bank, he said that large purchases will be the most attractive. "But that doesn't necessarily prohibit smaller acquisitions," he clarified.
While PNC is not currently working on an imminent deal, Reilly said, he expressed confidence that the bank's regulators would approve the right transaction, notwithstanding the Biden administration's relative skepticism about bank M&A.
"Talking to the regulators, they would be supportive of what they would call a good merger," Reilly said. "And a good merger means a competent acquirer that meets all of the requirements."
Other bankers who spoke at the BofA conference were cooler to the possibility of a bank acquisition.
Truist Financial is not currently prioritizing M&A activity, according to Chief Financial Officer Mike Maguire. The Charlotte, North Carolina, company has been struggling with the aftermath of the 2019 merger of BB&T and SunTrust Banks that created it.
KeyCorp in Cleveland is focused on organic growth, said CEO Chris Gorman. And at Pasadena, California-based East West Bancorp, which has $69.6 billion of assets, a smaller deal seems more likely than a transformative one, according to CFO Christopher Del Moral-Niles.
"I don't see us moving the needle massively through additions in any meaningful way, unless it's an incredibly rare opportunity," he said.
The credit card lender's blockbuster acquisition of Discover is not guaranteed to get across the finish line. But co-founder and CEO Richard Fairbank appears to see the rewards that would come from controlling a payments network as outweighing the potential downside.
Last year, the total number of U.S. bank mergers and acquisitions
Capital One's proposed $35.3 billion acquisition of Discover is the largest bank deal since the 2008 financial crisis. If it's approved by regulators, Capital One would become the largest U.S. credit card lender, and it would control a payments network that could provide competition with Visa, Mastercard and American Express.
Ralph Andretta, the president and CEO Bread Financial, an issuer of store-branded credit cards that competes with Capital One, said the blockbuster transaction announced Monday was a surprise.
Capital One's deal strategy seems to be mainly about leveraging Discover's payment network, Andretta said. "From that perspective, it makes sense. I think it puts them in a position to really compete globally against American Express," he said.
In a CNBC interview, Bank of America CEO Brian Moynihan said that the Capital One-Discover deal will increase concentration in the credit card business.
"We're an effective competitor," Moynihan added. "So I don't worry about the consolidation from a competitive standpoint."
Catherine Leffert and Polo Rocha contributed to this report.
