Banking Merger Frenzy May Meet Early End After Biden Order

Just when it was getting going again, banking’s deal frenzy may be running out of steam.

In a sweeping executive order President Joe Biden plans to sign Friday, he urged the U.S. Justice Department along with key regulators including the Federal Reserve and the Office of the Comptroller of the Currency to more heavily scrutinize banking mergers. It’s part of the administration’s broader push to increase competition in America.

“The order likely stalls deal activity until the industry understands what the scrutiny means practically for banks,” Herman Chan, a Bloomberg Intelligence analyst, said in an email. “The executive order could also delay the timing for closing on deals that are still pending.”

Banks have turned to mergers and acquisitions to contend with the financial impacts of ultra-low interest rates and the need for heightened technology spending. The M&A surge was just restarting in the U.S. after largely being on pause during the height of the Covid-19 pandemic.

U.S. banks have announced $47 billion worth of deals this year alone, more than the $45 billion announced in all of 2020. That includes New York Community Bancorp Inc.’s planned purchase of Flagstar Bancorp Inc. for $2.54 billion, and M&T Bank Corp.’s agreement to acquire People’s United Financial Inc. for $7.6 billion.

Banking Merger Frenzy May Meet Early End After Biden Order

In a fact sheet released Friday ahead of the signing, Biden’s administration noted that the U.S. has 10,000 fewer banks than it did two decades ago, with many of those closures tied to mergers and acquisitions.

“Excessive consolidation raises costs for consumers, restricts credit for small businesses and harms low-income communities,” Biden’s administration said in the fact sheet.

It’s difficult to say what impact, if any, the executive order will have on mergers in the near term because new federal guidelines can take a significant amount of time to hammer out, said Jennifer Rie, an analyst at Bloomberg Intelligence.

“It is a little bit of a waiting game,” Rie said in a phone interview. “And maybe that means some entities that realize there could be a competitive impact from the deal that they are proposing step back and wait it out.”

The executive order is unlikely to stop the “tsunami of bank mergers over the long term,” though in the “short term, this does set a tone of more strict bank regulation,” Wells Fargo & Co. analysts led by Mike Mayo said in a note to clients Friday. The order could have the unintended consequence of hindering smaller players from merging to compete more effectively, Mayo said in interview.

“This will just reinforce the barriers around the biggest banks like Bank of America, big tech and big foreign banks such as those in China,” he said.

Open Banking

As part of the executive order, U.S. Treasury Secretary Janet Yellen will prepare a report on how the activities of big technology companies and non-banks affect competition in the financial industry, with the report to be submitted to the White House within nine months.

For years, banks and their financial technology rivals have been quietly waging a battle over the vast troves of consumer financial data that lenders have in their systems. Upstarts have long sought access to that information to use in their apps and other products, but banks have been slow to make it available and vocal about fears related to privacy and security.

Now, the Biden administration is weighing in on the issue. The president is planning to order the Consumer Financial Protection Bureau to issue new rules that allow consumers to share their financial data with other banks and outside apps as part of his push to promote competition.

“Even where a customer has multiple options, it is hard to switch banks partly because customers cannot easily take their financial transaction history data to a new bank,” the administration said on Friday. “That increases the cost of the new bank extending you credit.”

Biden’s push follows similar efforts in countries around the world to urge banks to open up their systems and data to outside apps.

“We’ve been lagging behind many, many other developed countries,” Steve Boms, executive director in North America for the Financial Data and Technology Association, said in an interview. “What this means is the era of open finance in the United States has begun in earnest -- finally.”

©2021 Bloomberg L.P.

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