By David French, Tatiana Bautzer and Pete Schroeder
(Reuters) – Big banks are holding off on acquisitions and staying cautious about the Trump administration’s pledges to unleash dealmaking, according to industry executives.
Treasury Secretary Scott Bessent said last week that bank mergers had been slowed by minor issues. Days earlier, newly installed regulators moved to scrap strict Biden-era rules that raised oversight of big transactions.
“The slowdown in deals which we have seen has been caused by a whole host of things,” said Bill Burgess, co-head of financial services investment banking at Piper Sandler.
While welcoming deregulatory signs, bankers and industry executives told Reuters that big mergers were stalled by market volatility, economic uncertainty, concerns about paper losses on banks’ balance sheets, and the complexity of transactions among large, heavily regulated lenders.
Cheryl Pate, senior portfolio manager at Angel Oak Advisors, expects some consolidation among smaller regional and community lenders, but sees larger combinations as challenging.
“I’m less optimistic about M&A at the super regional level, I think that’s still probably going to have a lot more scrutiny,” which makes mergers of equals “unlikely,” said Pate, whose firm manages $18.4 billion in assets.
For larger banks, only a few big targets would make sense to expand their businesses, so executives are prepared to wait for the right deal to come along. PNC Financial Services, U.S. Bancorp and Truist Financial are among the companies often cited by analysts as candidates for expansion.
The Republican-led board of the Federal Deposit Insurance Corp said on March 3 it will reinstate earlier guidelines for its bank merger review process, stepping back from the stricter framework of the Biden era.
“The FDIC’s 2024 M&A guidelines were, in some ways, a significant departure from historical practice,” said Randy Benjenk, co-chair of financial services at law firm Covington & Burling. Rescinding of the rules was an important step in returning certainty to the industry, he added.
“Productive and synergistic mergers are often slowed due to immaterial supervisory issues,” Bessent said in a March 6 speech to the Economic Club of New York. The Trump administration wants to refocus financial regulation after the overreach of Biden-era regulators, he added.
SENTIMENT
The caution around deals contrasts with the excitement after President Trump’s election in November. The expected deregulatory wave was forecast to make it easier for U.S. banks — of which there are more than 4,500 — to combine. While mergers still need to be reviewed, the new administration is doing away with some of the tougher guidelines set out last year.
Biden regulators’ close scrutiny of combinations was bemoaned by industry executives who said it delayed transactions and discouraged new deals.
The $35-billion combination between Capital One and Discover Financial Services that was announced in February 2024 has yet to receive regulatory sign-off a year later. It is seen as a litmus test for the new administration’s willingness to speed up approvals.
There have only been nine announced transactions worth more than $1 billion since March 2022, according to S&P Global Market Intelligence. That compares with a dozen deals worth more than $1 billion struck during Biden’s first year in office.
Industry executives cite Toronto-Dominion Bank’s lapsed $13.7 billion acquisition of First Horizon also serving as a cautionary tale of what can happen when things go wrong. The deal was called off in 2023 after waiting for approvals for more than a year, and while First Horizon’s share price has recovered somewhat, the bank is today worth only 70% of the original deal price.
Regulators were reportedly reluctant to sign off on the merger amid concerns over TD’s policing of customer transactions. In 2024, the bank paid over $3 billion in penalties to resolve charges of violating anti-money laundering laws.
UNCERTAINTY
The regulatory outlook is still in flux because agencies including the FDIC and Office of the Comptroller of the Currency are being run by interim leaders. Many lenders also have regulatory problems that would need to be fixed before any large-scale M&A would be approved by officials.
Around two-thirds of large U.S. banks remain in the regulatory penalty box, as the Federal Reserve has deemed them to have unsatisfactory practices in areas ranging from governance structures to liquidity risk management, according to a recent report from law firm Wachtell, Lipton, Rosen & Katz.
Turmoil from the failures of Silicon Valley Bank and First Republic Bank in 2023 also weighed on investor sentiment and discouraged combinations. Meanwhile, rising U.S. interest rates have caused banks to hold swelling paper losses on their securities portfolios, which would be booked as actual losses if they were to merge.
“There are still some obstacles,” said Jason Goldberg, an analyst at Barclays. “The banks need to understand what exactly regulators want to see to approve a merger and less policy uncertainty. Over time, I think unrealized losses will decline and deals will come back. The industry is ripe for consolidation.”
(Reporting by David French and Tatiana Bautzer in New York and Pete Schroeder in Washington, additional reporting by Saeed Azhar, editing by Lananh Nguyen and Nick Zieminski)
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