By Ateev Bhandari and Pritam Biswas
(Reuters) -Shares of U.S. regional banks Pinnacle Financial Partners and Synovus Financial fell on Friday as investors balked at the possibility of stricter regulatory requirements due to their merger, which would significantly increase their combined assets.
The combined entity, with more than $115 billion in assets, would cross the threshold to be classified as a “large financial institution,” subject to much stricter regulations.
Analysts said that surpassing the $100 billion threshold often negatively affects bank profitability.
“The broader balance sheet impact may not be fully captured in the company’s current projections and that it could represent an incremental headwind to profitability,” Jefferies analysts wrote in a note.
“It necessitates growth in high-quality liquid asset securities, which typically yield less than loans.”
Shares of Synovus, which has more assets than Pinnacle, tumbled 12.7% in morning trading, while Pinnacle, which has a larger market capitalization, also declined, according to LSEG data.
Expectations of lower interest rates and positive economic data have improved executive sentiment, a marked reversal from early April when U.S. tariff policy put dealmaking on hold.
Analysts remain cautious about the timing of Pinnacle’s decision. “Pinnacle’s organic growth model was strong enough not to require a deal that could disrupt the existing strategy,” J.P. Morgan analysts said.
Some analysts said that crossing the asset mark could provide a buffer for a stronger balance sheet and enhance operational efficiency.
“The combination includes two growth-oriented companies with a long history in large, growing Southeast markets giving a solid start out of the gate,” analysts at Raymond James said in a note.
U.S. bank M&A activity is expected to accelerate in the second half of the year, supported by a more accommodating regulatory environment and a new merger review process.
(Reporting by Ateev Bhandari and Pritam Biswas in Bengaluru)
Comments