Bank mergers on their way to their highest level since the financial crisis
This is a sharp turnaround from last year, when the economy took off and many regional and community banks put merger plans aside. Today, bank executives are more confident of what the future holds, but some are struggling to cope on their own. Although the economy has recovered in many ways since 2020, demand for loans is still low and loan earnings are slim.
Banks have announced more than $ 54 billion in transactions through the end of September, according to Dealogic. This puts mergers and acquisitions in the industry into their biggest year since 2008, when some big banks had to sell off to avoid collapse. At the same time last year, banks had only announced $ 17 billion in mergers.
Banks typically spend weeks or months messing up a potential target’s loan portfolio, looking for subprime loans or other red flags, before agreeing to acquire it. But the Covid-19 pandemic has blurred this process. For months, lenders struggled to assess the creditworthiness of their own customers, let alone those of their competitors.
“Neither the potential sellers nor the buyers really wanted to make a transaction last year because of the uncertainty that could be on people’s balance sheets,” said Kevin Riley, general manager of First Interstate BancSystem Inc. in Billings, Mountain.
But the expected wave of defaults never materialized and, late last year, serious merger conversations resumed, according to executives and regulatory records.
This month, First Interstate agreed to buy regional lender Great Western Bancorp Inc. in a deal that will bring its assets to more than $ 32 billion.
“[Banks] no longer fear a bottom fall, “said Nathan Stovall, analyst at S&P Global Market Intelligence.” They no longer envision a deal like trying to catch a falling knife.
2019 has also been a big year for bank mergers, but more large regional regions are at stake this year. So while there are fewer trades this year than at this point in 2019, the overall value is higher than two years ago.
Minneapolis-based US Bancorp last week announced its intention to buy the main retail banking operations of MUFG Union Bank, further strengthening its presence on the west coast. Another large regional, Citizens Financial Group Inc., said in July that it planned to buy Investors Bancorp Inc. Investors Bank had suspended merger talks with another bank when the pandemic struck in 2020, according to regulatory documents. .
The Federal Reserve cut interest rates to near zero when the pandemic hit, and low rates made it harder for banks to cash in on their bread and butter lending business. The average net interest margin, a measure of loan profitability, hit a record low of 2.5% in the second quarter, according to the Federal Deposit Insurance Corp.
Small banks have also struggled to compete with the digital offerings and high-end technology of mega-banks.
Bank of Commerce Holdings, based in Sacramento, Calif., Began courting potential merger partners in the spring of 2021. The board of directors and management of the $ 1.9 billion asset bank have considered for years different options to overcome the industry’s ever-narrower margins, including the acquisition by a larger bank, said CEO Randy Eslick. It took less than three months to close a deal with $ 18 billion Columbia Banking System Inc. of Tacoma, Wash.
The deal was announced in June and the combined bank will have the resources to invest in technology and other areas (fiduciary services, wealth management, specialist lending) that the smaller Commercial Bank could not have funded. single.
“This stuff brings technology to the table that we couldn’t afford,” Mr. Eslick said. “At the end of the day, we have more arrows in our quiver.”
The pressure for expansion has only intensified in recent years, said Scott Wylie, CEO of Denver’s $ 2 billion First Western Financial Inc. In July, First Western announced it would acquire the parent company of a smaller bank, neighboring Rocky Mountain Bank.
“For a bank of $ 300 million or $ 700 million, before you could have a nice little business that could last a long time,” Wylie said. “These days it’s really difficult.”
Home BancShares Inc., based in Conway, Ark, announced this month that it will buy Happy Bancshares for more than $ 900 million. Within weeks, CEO John Allison secured another deal.
“Someone said to me, ‘Johnny, the body hasn’t even cooled down yet … and they’re offering all these other offers,” Mr. Allison said.
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