Daily Management Review

M&A deals of US banks peaked heights of 2009


08/19/2016


US regulators have introduced a set of rules to avoid collapse of systemically important credit institutions. However, smaller banks have to merge to cope with costs of meeting these requirements.



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The largest banks in the country are actually not allowed to make big deals, yet regional banks are free to unite. Mergers and acquisitions among US banks last year amounted to about $ 18 billion, which is highest since 2009.

This Thursday, United Bankshares Inc. reached an agreement to purchase Cardinal Financial Corp. to expand its presence in Washington. The acquisition price is approximately $ 912 million. In the past month, FNB Corp. from Pittsburgh agreed to acquire Yadkin Financial Corp. for $ 1.4 billion to expand its presence in the Carolinas.

Bankers say M&A is the only way to deal with the increased regulatory burden. According to SEC, low interest rates are increasing pressure on the banks, and are reducing their profits.

Of course, it is unlikely that even the current rate transactions would lead to creation of new financial giants, like in series of mergers in the 1990s, which created giants such as Citigroup Inc. and Bank of America Corp.

This is partly obliged to the fact that these financial giants with assets in excess of $ 1 trillion left other market participants far behind. Many small banks would not seek to increase assets to more than $ 10 billion, $ 50 billion or $ 250 billion as it would cause additional regulatory supervision in accordance with rules adopted after the financial crisis.

In April, Chairman of the Federal Deposit Insurance Corporation (FDIC) Martin Gruenberg said that the smaller banks consolidate due to a combination of slow economic growth and low interest rates. With regard to the rules, he said, regulators try to adapt supervisory requirements, so that the costs would not hit small lending institutions.

The number of transactions continues to grow, as interest rates begin to rise, said Bill Hickey of Sandler O'Neill. "We see activity in the second half of this year, which is will be bigger than in the second half of last year - he said. - If shape of the yield curve does not change significantly, I think that 2017 will be an important year for bank M&As." 

source: bloomberg.com






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