Why Bank Consolidation Fervor Continues

Why Bank Consolidation Fervor Continues

Number of Deals Already Eclipses 2020. Where Are Next Targets?

BankerAdvisor’s predictions from earlier this year are coming to fruition. In March, we reported on wide-ranging trends that were driving competition in banking. Included was the contention that “regional banks were pursuing a dual-track strategy to compete. First, a long expected consolidation in regional banking is well underway.”

According to data compiled by Truist, there have been nearly 150 bank mergers already announced in 2021 versus 119 for all of 2020, the biggest year since the financial crisis of 2008 forced many mergers. The value of announced deals is more than $54 billion for 2021 versus $17 billion for all of last year.

Market Forces

Pressure from near zero interest rates have made it more difficult for banks to secure profits from staples such as business lending. Even while deposits reached a record $17 trillion, with rates near zero and with so much deposit cash on hand, banks don’t have much incentive to compete for business by pushing up yields.

However, smaller players don’t have the resources or expertise to expand services they would need to diversify effectively. As a result, regional banks are listening to suitors who can provide resources they don’t have to invest in expansion areas such as specialty lending, wealth management and trust services.

The Wall Street Journal recently quoted Scott Wylie, CEO of $2 billion First Western Financial, Inc. in Denver who is buying Rocky Mountain Bank, saying, “For a $300- or $500- or $700-million bank, it used to be you could have a nice little business that could go for a long time. These days, that’s really hard.”

Digital Transformation Proves Difficult

BankerAdvisor also stated that while most banks said they were making commitments to a deeper digital strategy, big banks had a significant lead and are making larger investments in their digital transformation agendas over regionals. Few institutions other than the top 25 banks are doing much with AI and mobile banking, with some exceptions such as Huntington Bank.

Touch has to merge with technology, in order for regionals to compete, according to people like Kelly King, CEO of Truist. New data suggests that a number of banks would rather switch -- or merge — than fight.

Attractive Targets

If the $300 million - $1 billion bank is the right sized institution to pursue, are there any regions looking more ripe for the picking?

According to Barrons, Texas and the Southeast appear to be a target-rich zone not only because of the number of banks but in their willingness to be courted.

Analysts at Deloitte also say that the Biden Administration is more interested in scrutinizing mega deals — those in excess of $5 billion — than on slowing smaller deals.