Bank merger-and-acquisition activity slowed to a crawl this year, hampered by spiking interest rates, weaker stock valuations and high regulatory hurdles. But the latter impediment may soften in the aftermath of
This year, only 28 deals were announced through April, according to S&P Global Market Intelligence. That was half the volume during the same period a year earlier. In the same span, the latest S&P data showed the aggregate disclosed deal value plunged to $535.5 million this year from $2 billion in 2022.
And 2022 was a relatively slow year: There were just 168 U.S. bank M&A deals announced last year, down from 205 in 2021.
Jacob Thompson, managing director of investment banking at Samco Capital Markets, said in an interview that the Federal Reserve's year-long rate-hike campaign to curb inflation raised the specter of a recession, creating uncertainty that pushed some buyers to the sidelines. The macroeconomic backdrop also put downward pressure on banks' stocks and hindered the ability for buyers to use their shares to pay for acquisitions. These impediments remain intact and likely will prevent a jump in M&A anytime soon.
But Thompson said regulatory headwinds that emerged after the Biden administration
"I do think we are starting to see the beginnings of a more accommodative regulatory process," Thompson said.
He noted that the failures of Silicon Valley Bank, Signature Bank and First Republic Bank this spring reminded regulators that traditional M&A is better for the industry, the companies involved and the Federal Deposit Insurance Corp. than failed-bank-deals. The FDIC's insurance fund, paid for by banks, covers losses caused by failures. Banks could end up paying extra to replenish the insurance fund.
"I do think regulators are signaling that they would rather see market forces solve any future issues through traditional M&A — rather than the FDIC stepping in and having to absorb losses," Thompson said. "From an optics perspective, traditional M&A is part of a healthy banking industry, whereas failed-bank-deals carry some stigma."
The $562 billion-asset PNC Financial Services Group's chief executive echoed that thinking.
"You're hearing from different regulators and even politicians that M&A is back on the table for a couple of different reasons," William Demchak, chairman and CEO of PNC in Pittsburgh, said at a Bernstein conference last week. "One is the basic notion that it would be better to do open bank deals than [FDIC] deals.
"But also, I think the recognition that scale matters in terms of risk management, in terms of regulation, in terms of technology, in terms of a lot of different things in there. As much as we would like to say it doesn't, it does. And I think people are waking up to that fact after some of the failures," Demchak said.
His comments followed written testimony for a May hearing before the House Financial Services Committee from Acting Comptroller of the Currency Michael Hsu. He said the recent failures had "increased the urgency" to update bank M&A guidelines.
"The OCC is committed to being open minded when considering merger proposals and to acting in a timely manner on applications," Hsu said.
Drivers of M&A remain alive and well. In particular, would-be small bank sellers, struggling to keep up with the technology spending of larger banks and intense competition broadly, may look to join larger banks to create more efficient digital offerings. Elevated deposit costs also are hurting many community banks.
Larger community and regional banks, meanwhile, are eager to broaden their loan portfolios, giving them greater options to grow interest income through loan volume and to diversify to help safeguard credit quality should the economy slow and defaults on certain types of loans rise. Geographic diversity can prove similarly positive, said Larry Mazza, CEO of the $3.6 billion-asset MVB Financial in Fairmont, West Virginia.
"There are still plenty of motivators for M&A when" the industry "gets a little more certainty about the environment," Mazza said in a May interview.
After hosting a bank investor conference in May, analysts at D.A. Davidson sized things up this way in a report: "M&A activity will remain constrained given economic uncertainty, high interest rates, and weak buyer currencies, but there is potential for pent-up activity once clouds clear."
