Bank acquisitions fell sharply in 2022, but many bankers believe that rising economic uncertainty will present opportunities for acquirers to find deals that provide more value.
About 60% of bank corporate-development professionals
"Those deals that do happen are more likely to create value for the acquirer," said Igor Yasenovets, a senior partner in McKinsey's global financial services practice.
The uncertainty rolling across the U.S. economy may provide chances for banks to acquire financial technology companies or other banks at discounted prices. At the same time, proposed mergers typically face higher levels of scrutiny during times of financial distress, lowering the likelihood that incompatibilities between institutions will be overlooked.
Mergers executed during times of financial uncertainty have historically been more likely to deliver returns to shareholders, the McKinsey report found.
About 51% of deals announced between 2007 and 2009, when the U.S. economy was in a recession, recorded positive excess shareholder returns, according to the study. The same was true for only 22% of deals executed between 2016 and 2018 and 28% of those made between 2019 and 2022.
Still, the last financial crisis spurred revised standards in bank regulation, making the deals that were executed 15 years ago different from those being done today.
The number and size of bank mergers has fallen sharply in 2022. Banks announced 27 deals through September, compared with 56 for full-year 2021. The amount paid by acquirers totaled $18 billion through the first nine months of 2022, well below the $67 billion recorded last year.
Many of the big-dollar deals announced last year have taken longer to navigate the merger-approval process amid renewed merger scrutiny ordered by the Biden administration. For several months in 2021, regulators didn't approve any bank deals. And those deals that have been approved have faced more hurdles than they would have in past years.
The Federal Reserve official in charge of bank oversight, Michael Barr, said in September that he was working with staffers to assess the Fed's current policies for reviewing mergers.
Bank mergers may "reduce competition and access to financial services in a geographic area by raising prices, narrowing the range of services offered, and reducing the supply of small business or community development loans that rely on local knowledge," Barr said.
Columbia Banking System waited a year and
More banks are merging in an effort to add technology than was the case in the past, the McKinsey research found.
Between 2019 and 2022, about 28% of bank deals were executed to increase specific capabilities, up from 11% of transactions between 2010 and 2012. The share of deals done with the intent of increasing scale fell from 65% to 49% between the same two periods. Deals done with geographic expansion in mind stayed relatively steady at 24% between 2010 and 2012 and 23% between 2019 and 2022.
