With Big Acquisitions Still on Ice, U.S. Banks Find New Targets
With Big Acquisitions Still on Ice, U.S. Banks Find New Targets
(Bloomberg) -- Shareholder skepticism, stock-price swings and regulatory scrutiny have all put a chill on regional banks merging with each other. They’ve been less shy about buying non-bank firms.
U.S. banks’ acquisitions of non-bank companies -- anything from fintech firms to trading shops -- have more than doubled in the last 12 months, according to data compiled by Bloomberg. In just the last month, PNC Financial Services Group Inc. agreed to buy an investment bank, KeyCorp announced a deal for a digital lender and U.S. Bancorp acquired a payments-software company.
Buying financial-technology companies or fee-based businesses like wealth management can help regional banks boost offerings as they seek to compete with giants like JPMorgan Chase & Co. Citizens Financial Group Inc., for example, announced acquisitions last year in both mortgages and wealth management. Chief Executive Officer Bruce Van Saun said he’s looking for more deals this year, potentially including an M&A shop.
“The regional-bank M&A market has been pretty tepid over the last 12 months,” said Sven Mickisch, a partner at law firm Skadden Arps Slate Meagher & Flom who specializes in banking and financial regulation. Negative stock reaction “has impacted the confidence of would-be acquirers to do these types of deals.”
Negative Reaction
Regulatory scrutiny, capital rules and swinging valuations have proved a challenge for banks seeking to merge or buy each other. Non-bank acquisitions are “nice tuck-ins” that won’t ultimately affect regional banks’ decisions to take part in larger deals when the time is right, Mickisch said.
“This very negative market reaction has perhaps taken over as the principle obstacle to consolidation,” Rodgin Cohen, a Wall Street lawyer at Sullivan & Cromwell, said in an interview.
When Cincinnati, Ohio-based Fifth Third Bancorp agreed in May to buy MB Financial Inc. for $4.7 billion -- the biggest announced U.S. bank merger in the past three years -- the stock slumped the most in almost two years. Through Wednesday, it was still down 19 percent since the deal was announced.
What Our Analysts Say...U.S. regional banks stand to shed capital restrictions as well as Volcker Rule compliance costs and to have an easier time meeting mandated stress tests in 2019 under several regulatory proposals.-- Nathan R. Dean, Senior Government Analyst, and Ben Elliott, Government Analyst, Bloomberg Intelligence For more, read the full note |
Easing regulations and the 2017 tax cuts could yet bring about a round of deals by U.S. banks, which number more than 5,000, as they seek scale to compete for clients and technology. Those in the industry said that a round of regional bank mergers is a question of when, not if.
Sharon Dogonniuck, a senior managing director of banking and capital markets at Ernst & Young LLP, said in an interview last month that she “absolutely” expects larger deals in 2019. Calmer markets to start the year and a positive stock reaction to a Chemical Financial Corp. and TCF Financial Corp. merger announced Monday may pave the way for these deals to come to fruition.
--With assistance from Matthew Monks.
To contact the reporter on this story: Hannah Levitt in New York at hlevitt@bloomberg.net
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Dan Reichl, Daniel Taub
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