Bloomberg financial analysts say regulatory uncertainty could slow the pace of M&A. U.S. banks had been combining at a record pace since before the global financial crisis, according to Bloomberg, but now face several hurdles, including mounting pushback from Democrats who say industry consolidation is detrimental for consumers.
Bloomberg intelligence analysts Herman Chan and Rujuta Desai said that regional leaders could “tap the brakes” on M&A until regulators offer more clarity. Still, they found “anemic loan growth and competition from larger or more technologically savvy rivals are likely to force banks to keep seeking out combinations even amid the obstacles.”
Democratic Party opposition to the pace of M&A was evident in July, when President Joe Biden directed the Justice Department and federal banking regulators to more closely scrutinize bank mergers and make it easier for customers to switch banks. As part of his executive order, which Biden said is intended to promote competition, the DOJ and banking regulators are encouraged to update guidelines on bank mergers to provide more robust scrutiny. Also, Biden urged the Consumer Financial Protection Bureau to issue rules allowing customers to download their banking data and take it with them when they switch banks. According to the Biden administration, federal agencies had not formally denied a bank merger application in more than 15 years. Excessive consolidation raises costs for consumers, restricts access to credit, and harms low-income communities, according to the White House.
“Particularly in low-income communities, this means fewer bank branches,” creating barriers to credit and banking access, Mehrsa Baradaran, a University of California, Irvine law professor, told Bloomberg.
There had been nearly $59 billion in bank M&A this year through Nov. 3, the most since 2007, according to S&P Global Market Intelligence data. In the Midwest, Eagle Bancorp Montana, Inc., is purchasing First Community Bancorp, Inc., and its subsidiary, First Community Bank, in an approximately $41.3 million transaction. As of early October, mergers of equals were slightly higher than before the pandemic — 9 percent to 7 percent, respectively. The median price of tangible book value paid by investor groups has grown from 134.5 percent to 157 percent. There have been 151 whole-bank M&As this year compared to 110 last year. That increase is still lower than the approximately 250 yearly transactions between 2015-19.
Last fall, the Independent Community Bankers of America encouraged the Department of Justice to update its guidelines on reviewing bank mergers, prioritize mergers in small markets that preserve the financial viability of small banks, and institute parity in its considerations of credit unions, Farm Credit System lenders and online banks.