Bank M&A Stagnates Despite Trump Push to Deregulate Industry

By Jeff Bater

President Donald Trump’s push to deregulate the financial sector hasn’t unleashed a flood of mergers and acquisitions among banks.

The 159 U.S. bank deals announced so far this year is 9 percent lower than the 175 during the same nine-month period in 2016, according Bloomberg L.P. data. Deal volume has trended downward in recent years from 323 in 2009 and 351 in 2010, to 235 deals for all of 2016.

The deal stagnation comes amid rising bank stock prices since Trump’s election in November. The new administration has talked about loosening rules for banks, but made relatively little progress.

The lull in M&A activity “is likely driven by a level of uncertainty resulting from slower than anticipated regulatory reform,” Michael D. Schiffer, a partner at Venable in Baltimore, told Bloomberg BNA

In June, the Republican-controlled House approved the Choice Act (H.R. 10), sweeping legislation to revamp much of the Dodd-Frank Act. But the bill passed without Democratic support and the Senate has yet to take up the measure. Senate Banking Committee Chairman Mike Crapo (R-Idaho) wants to overhaul mortgage finance giants Fannie Mae and Freddie Mac before tackling comprehensive changes to Dodd-Frank.

Uncertainty Over Rule Relief

Kevin Petrasic, a partner at White & Case in Washington, said there isn’t a clear picture of what the regulatory structure will look like from a leadership perspective.

Two key bank regulatory nominations—Randal Quarles to be vice chairman for bank supervision at the Federal Reserve and Joseph Otting to helm the Office of the Comptroller of the Currency—are awaiting Senate floor votes eight months into the new administration.

“Folks are eager to see what sorts of reforms, legislative and/or regulatory reforms, will actually be put forward,” Petrasic told Bloomberg BNA.

David Baris, a partner at Buckley Sandler in Washington, said any expectation of regulatory relief might actually make banks more likely to stay independent rather than look to merge.

“A lot of banks, are still struggling to make a reasonable profit with the headwinds of continuing substantial compliance costs,” he told Bloomberg BNA. “If they’re able to get regulatory relief from Congress or the banking agencies and CFPB [Consumer Financial Protection Bureau], that would give them more reason to stay independent. So it could work the other way.”

Bloomberg data generally tracks numbers recently compiled by FIG Partners, an investment banking company based in Atlanta. Christopher Marinac, director of research for FIG Partners, said he thinks the modest year-to-date decline in deal numbers revealed by his firm’s data is due to the abrupt surge in bank stock prices, which peaked in March 1 and then moderated.

“Asking prices from sellers increased rather significantly, such that buyers were not able to agree on a price and either walked away or delayed M&A transactions,” he told Bloomberg BNA, while adding, “We still feel there is pent-up demand from many financial institutions to sell, especially now that prices have improved post financial crisis and boards of directors recognize that their patience can finally pay off.”

Yet to Materialize

Mary Ann Scully, CEO of Howard Bank in Ellicott City, Md., acknowledges there had been some expectation of a “floodgate” of M&A activity in the banking sector. “That certainly hasn’t happened,” she said. “There’s probably a lot of reasons for that. First, there is, especially in the smaller bank space, always a certain reluctance for maybe historical or legacy reasons to sell.”

Howard Bank announced Aug. 15 it was acquiring 1st Mariner Bank, based in Baltimore. “As people have seen share prices go up, it has a positive impact on M&A. It certainly did in our case,” she told Bloomberg BNA. “It makes your currency look more attractive and you’re able to undertake a negotiation with a different mindset. But it also makes deals more expensive.”

The recent growth in financial technology, or fintech, and interest among traditional banks could also explain the decline in M&A.

“You have non-traditional players eyeing the banking space,” Petrasic said. “You have banks eyeing acquisitions of non-traditional players. You have non-traditional players in some cases eyeing the possibility of bank acquisitions or significant types of joint ventures — partnerships, things like that.”

Christopher Witeck, a partner at Buckley Sandler in Washington, said the proposed fintech charter with the Office of the Comptroller of the Currency remains a viable option that may contribute in the near term to decreased bank deal activity.

“If it becomes clear that’s not an option, you may see more fintech companies trying to buy banks,” he told Bloomberg BNA.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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