Bank mergers are not just happening- they are accelerating as we move into the second half of 2018. Get in on the action for just $49 for the first year. Use coupon code June18 at checkout and get one year of the Community Bank Stock Investor at a 75% discount during my Welcome to Summer Sale!
Bank M&A Transactions Remain Brisk in First Quarter of 2018 According to New Research from Integrated Legacy Solutions.
Regulations drive M&A for small banks
But analysts at Compass Point Research & Trading LLC called the legislation "substantially bullish for banks and bank M&A." Bankers at recent conferences have said the law will trigger more large-bank M&A. There could be more small-bank deals too, as the legislation expands the small bank holding company policy statement to banks with $3 billion of assets, enabling them to take on more leverage, which provides more ammunition for acquisitions.
M&A to secure deposits is the name of the game
Ryan said sellers, particularly those with strong core deposit franchises, might find even more motivated buyers knocking on their doors as they seek to build their funding bases. They might present some banks a good time to sell and avoid living through another credit cycle, he said.
"I think you may see an uptick in activity because of people wanting to get out," Ryan said at the event.
Daniel Goldfarb, senior portfolio manager at AlphaOne Capital Partners, offered a similar viewpoint.
"On the seller side, maybe it's FOMO," Goldfarb said, referring to the “fear of missing out”—"I was here last cycle and the cycle before that."
Yet, there is reason to be optimistic about banking and securities M&A in 2018. Virtually all of the same drivers remain in place and are being bolstered by increasing regulatory clarity and US tax reform legislation—both of which will benefit bottom lines and add to capital war chests.
Banks Buying Deposits
An intensifying pursuit of core deposits is fueling bank mergers and acquisitions in 2018, bankers and analysts say.
"That's for sure been the primary discussion in M&A this year," Joe Gladue, director of research at Merion Capital Group, said in an interview.
Banks pushed towards M&A
The recent Dodd-Frank Act rollback signed by President Donald Trump could be the extra push some banks need to start ramping up mergers and acquisitions.
The changes will be an extra incentive for combinations among banks with $50 billion to $250 in assets, which are already benefiting from an improved economy and tax cuts.
“I would say that for some of us in the industry, we thought there would be consolidation even in the absence of this bill,” Michael Reed, a partner at Covington & Burling LLP who specializes in corporate transactions, told Bloomberg Law in a May 30 phone interview.
An easing of financial rules will soon unleash pent-up mergers and acquisitions among mid-sized U.S. banks, according to deal bankers, analysts and bank executives.
Deal Pace is up
The firm’s U.S. Financial Services Deals Insights report for the first quarter 2018 notes that these basic deals have been buoyed by factors such as favorable stock prices that increase buyers’ currency as well as an atmosphere of regulatory easing. Many of the first quarter deals in the banking sector consisted of such mergers, most with deal values of below $500 million.
The banking and capital markets sector, as defined by PwC, saw overall deal value hit $16.3 billion in the first quarter, versus $12.5 billion in the first quarter of 2017. Much of this—69%—resulted from five deals that each exceeded $1 billion in value. This suggests that the pace of mergers among larger players may pick up this year. The firm’s report points out that 2017 saw only seven such deals by year end.
Consolidation is coming
The conditions for dealmaking look better than at any time since the financial crisis. Higher interest rates and lower taxes have pumped up bank profits, giving management teams stronger platforms from which to contemplate doing something radical. Data released on Tuesday by the Federal Deposit Insurance Corporation showed that net income across the banking industry rose 27 per cent from a year earlier in the first quarter, to a record $56bn.
This is happening now and will continue for a long time. Enormous profits will be earned by community bank stock investors. My question for you is how much of those huge profits will end up in your pockets?
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