Bank M&A ‘Deep Freeze’ Thaws With Billion-Dollar Deal Wave
John Augustine, chief investment officer of Huntington Bancshares Inc., speaks during a Bloomberg Television interview in New York, U.S. (Photographer: Christopher Goodney/Bloomberg)

Bank M&A ‘Deep Freeze’ Thaws With Billion-Dollar Deal Wave

If three’s a trend, then U.S. regional bank tie-ups are in the middle of one.

Huntington Bancshares Inc.’s $6 billion purchase of TCF Financial Corp., announced Sunday, marks the third multibillion-dollar regional bank deal in as many months, and industry executives say more mergers and acquisitions are likely.

“Covid put the M&A market into a deep freeze, and we are clearly thawing out of that now,” Jimmy Dunne, vice chairman and senior managing principal at Piper Sandler Cos., said in an interview. “You have low interest rates, tight margins, age of CEOs and a significant need to grow and to get larger.”

Regional banks have long sought to bulk up their digital offerings to compete with giants such as JPMorgan Chase & Co. and Bank of America Corp., which spend billions annually on technology and have been moving into new markets. The coronavirus pandemic and ensuing economic shutdowns accelerated the trend, while near-zero interest rates weigh on banks’ profits.

Some of those factors contributed to PNC Financial Services Group Inc.’s decision to purchase Banco Bilbao Vizcaya Argentaria SA’s U.S. banking operations last month for $11.6 billion. Likewise, First Citizens BancShares Inc. said in October that it agreed to buy CIT Group Inc. for more than $2 billion.

On Deck

Who’s next? Bankers and analysts have pointed to firms including U.S. Bancorp, Regions Financial Corp., Toronto-Dominion Bank and Comerica Inc. as potential candidates. U.S. lenders approaching an asset size of $250 billion, a threshold that brings more intense regulatory scrutiny, may want to combine to spread compliance costs.

And HSBC Holdings Plc could be a seller. The bank, Europe’s largest by market value, is looking at offloading its U.S. consumer franchise as Chairman Mark Tucker accelerates a move to sharpen the lender’s focus on its core Asian business.

“The Covid-19 pandemic has the potential to accelerate several of the expected drivers” for regional bank deals, said Jason Goldberg, an analyst at Barclays Plc, adding that new vaccines are giving management teams comfort to move forward. The pandemic “certainly accelerated the move to digital banking, so there’s an increased need for technology. And some banks are further behind than others in that aspect.”

Case in point: Huntington said Monday that its tie-up with TCF Financial will enable it to spend an additional $150 million on digital investments and innovation over 3 1/2 years.

Both companies believe the economy is recovering, Huntington Chief Executive Officer Steve Steinour said in an interview. “This is an important inflection moment and that’s why now was important.”

Pandemic Effect

In the race for expanded technology offerings, banks have not only each other to compete with, but also companies such as PayPal Holdings Inc. and Square Inc., according to Tom Michaud, chief executive officer of KBW, which advised TCF on its deal with Huntington. KBW is part of Stifel Financial Corp.

“These banks are trying to join the arms race with the technology companies,” Michaud said in an interview. “It’s not like the competition is the bank across the street this time.”

Last year’s $28 billion combination of BB&T Corp. and SunTrust Banks Inc. was widely seen as the start of a new wave of mergers among U.S. regional players. But in the months that followed, many industry executives chose instead to pursue smaller non-bank acquisitions ranging from fintech firms to trading shops.

The pandemic ushered in concern that loan losses would surge and years of low interest rates would weigh on revenue. Banking industry valuations sunk earlier this year and haven’t recovered at the same pace as the broader market. The 24-firm KBW Bank Index is down 18% this year, while the S&P 500 is up 13%.

“I am very confident that the banking industry will continue to consolidate,” M&T Bank Corp. CEO Rene Jones said at an industry conference earlier this month. “In the long term, it will be your ability to win your customers and have a good customer experience -- and to keep pace with the investments that are necessary to do that.”

©2020 Bloomberg L.P.

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