Business World

US banks set for mergers and acquisitio­ns


WASHINGTON — An easing of financial rules will soon unleash pentup mergers and acquisitio­ns among mid-sized US banks, according to deal bankers, analysts and bank executives.

Deal activity in the sector has languished since the 2007-2009 financial crisis thanks to stricter rules on lenders with more than $50 billion in assets and aggressive enforcemen­t of rules barring banks with compliance issues from expanding.

Lawmakers, spurred on by the leadership of Republican President Donald Trump, are set to raise the threshold for systemical­ly important banks, making lenders that had capped growth to avoid the added compliance and capital costs more inclined to combine.

A bipartisan bill, expected to pass the US Senate in coming weeks, will raise the threshold to $250 billion, the biggest change yet to the 2010 Dodd-Frank Wall Street Reform Act.

“To the extent that $ 50 billion gets up to $ 250 billion, as is being talked about, that will certainly help take a very large impediment out of the way and you’ll likely see more M&A activity,” said Rajinder Singh, chief executive of Miami Lakes-based BankUnited Inc., which has $30 billion in assets.

Regulators are also looking to expedite deal approvals and ease up on compliance issues that can delay transactio­ns.

The number of US bank deals has fallen in each of the past four years, dropping 23% between 2014 and 2017, according to Reuters data. This came at a time when overall M&A activity was rising each year.

Deals will likely emerge among banks with between $20 billion and $200 billion in assets, Singh added.

BankUnited, with annual asset growth of 10% to 15%, had been marching toward the $ 50- billion mark and any acquisitio­n would have the drawback of bringing it there more quickly, said Singh.

“If it goes to $250 [ billion], that’s the pressure off,” he said, adding that if BankUnited were to make a purchase, it would likely be small.


Investment bankers told Reuters they expect deal talks to kick off once the Senate bill passes.

One, who spoke on the condition of anonymity, said a regional bank CEO told him his institutio­n was targeting three or four purchases within five years.

Traditiona­l M&A factors are also positive. The KBW Bank Index has risen around 49% since Trump’s election, giving sellers comfort they are getting a good price and buyers strong currency to fund stock mergers. A positive US economic outlook also provides a solid backdrop.

“We expect to see more activity in the $20 to $30 billion asset space, and likely some incrementa­l action by larger banks with assets of $100 billion-plus,” said Gary Howe, head of Lazard’s North American Financial Institutio­ns Group.

Banks below the threshold that said in analyst calls last month they saw an opportunit­y to do deals include First Horizon National Corp., and Associated Banc-Corp.

First Horizon declined to comment. Associated Banc-Corp did not respond to a request for comment.


Regulators are also looking at speeding up the often lengthy and unpredicta­ble process for approving tie-ups.

The Federal Reserve, the key gatekeeper for banks, is reviewing its M&A applicatio­n process, officials have said.

“It’s important we focus on faster decision-making, greater transparen­cy, and a general streamlini­ng of the applicatio­n review process. So one of the areas we’re trying to address first is the processing of bank M&A deals,” Adam Cohen, general counsel at the Fed, told a conference last month.

The Fed took 54 days on average to approve a deal in the first half of 2017, and that shot up to 190 days if the deal received adverse public feedback, Fed data showed.

Delays can stretch into years if a buyer has compliance issues. It took M&T Bank more than three years to complete its 2015 tie-up with Hudson City Bancorp after the Fed found problems with M&T’s compliance systems.

Data provided by consultanc­y Navigant suggests around 370 firms may be in this so- called regulatory penalty box.

But a softening of enforcemen­t should see fewer banks enter the penalty box in the first place.

Financial regulators have pledged to relax how they assess compliance with fair lending, anti-money laundering and marketing rules that generate the majority of problems.

The Fed is also considerin­g how it can speed up the resolution of these infraction­s, one person with knowledge of the matter said.

“If there is relief on one or both of the Bank Secrecy Act/anti-money laundering or the Community Reinvestme­nt Act ... that would be helpful for M&A by easing the potential for a long regulatory review process,” said Michael Reed, partner in the M&A practice at law firm Covington & Burling.

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