As dealmakers relish new opportunities for scale, financial industry leaders call for updated guidance on bank mergers and acquisitions from the federal government
Banking M&A is picking up steam. While the overall volume of M&A deals in 2024 has been on par with last year, S&P data shows total transaction value is more than double the $4.15 billion in all of 2023, with three months still left in the year. Now, the Fed’s announced rate cut of 50 basis points has the banking industry ready for more. “The U.S. M&A market has arrived at an inflection point,” says Mitch Berlin, Ernst & Young’s vice chair for strategy and transactions, in American Banker. “While the cost of capital remains high, CEOs are going to be energized by the 50 basis points rate cut and the Fed’s decision to embark on its easing cycle.”
Jeremy Swan, managing principal of global firm CohnReznick, states it more plainly: “This cut will spur investment in M&A activity.” The reality is that all of M&A has been slowed by uncertainty – with dealmakers unsure that the economy would achieve a “soft landing” and if and when rates would come down in response. “[Buyers] have been holding their breath for months in anticipation of this decision from the Fed, and many will take advantage of this opportunity to act on deals that have been waiting to move forward,” according to Swan in American Banker. Industry watchers are also monitoring whether stalled M&A deals will now resume.
Beyond the economics of bank mergers and acquisitions, there is a push for the federal government to update its banking M&A guidance. Until September of 2024, the Department of Justice had not adopted any new bank merger policy in nearly 30 years. “Banking regulators realize that allowing high-risk banks to make still-bigger bets by swallowing other banks can pave a swift path toward a systemic crisis,” says Karen Petrou, a partner at Federal Financial Analytics, in a banking op-ed. Petrou argues that overly scrutinized midsize bank deals and industry delays hollow out the middle of the banking market, which is bad for banks and consumers, alike.
One answer for midsize banks in their quest for scale is the merger of similar sized institutions. While banks or credit unions still won’t be on the same playing field as Chase or Bank of America, merging with a like-sized bank or credit union can help reduce some of the complications inherent in acquisitions by bigger banks. “Small to midsize banks are looking at ‘mergers of equals’ as a viable strategy,” says Dorree Ebner, EY Americas financial services cross-service line leader. “By merging with institutions of similar size, they aim to create a more stable entity that can withstand the pressures of regulatory scrutiny and market challenges.”
If you’re a banking leader looking for scale to serve more and serve better, get in touch with the banking growth experts at Adrenaline. To stay up to date with the latest news impacting the banking and credit union industries, including bank mergers and acquisitions, follow Believe in Banking.