President Donald Trump’s return to the White House is largely expected to spur a wide-scale easing of regulation. But how that takes shape in banking mergers and acquisitions remains to be seen.
The first big test concerns Capital One’s proposed $35.3 billion combination with Discover – by far the largest bank deal announced in 2024. Shareholders of each company are set to meet Feb. 18, roughly a year after the deal was disclosed – presumably to gauge the tie-up’s prospects.
State regulators in Delaware have signed off on the deal, but a green light from federal agencies has been more elusive. The Federal Reserve Bank of Richmond has peppered Capital One with multiple requests for information regarding the deal.
The companies are doing what they can to make the deal palatable to regulators, announcing a five-year, $265 billion community benefits plan and selling off Discover’s private student-loan portfolio – historically a trouble spot for the lender.
If the Capital One-Discover deal is approved, a greater number of banks may feel comfortable pursuing bigger deals, analysts said.
Not that 2024 was a year of small deals. Six crossed the $1 billion mark: SouthState-Independent ($2 billion), UMB-Heartland (also $2 billion), Atlantic Union-Sandy Spring ($1.6 billion) Old National-Bremer ($1.4 billion), Renasant-The First Bank ($1.2 billion) and Berkshire-Brookline ($1.1 billion).
Regulators, even before Trump took office, blessed several deals. The Fed gave a green light to the SouthState and UMB acquisitions in December and January, respectively. And the Federal Deposit Insurance Corp. signed off on WesBanco’s $959 million proposed purchase of Premier Financial Corp.
Across a spectrum of sizes, though, M&A activity among banks is expected to increase, analysts predict.
Regional banks may be driven by growth objectives, technology acquisition or geographic expansion, some said. Community banks with less than $10 billion in assets will most likely see integration between similar-sized institutions or may pursue small deals but stay under regulatory thresholds.
Regulatory easing?
Those thresholds are key. The specter of a once-seemingly imminent Basel III capital requirements upgrade has dissipated. But other groundwork – specifically, tiered regulation – remains.
“I think if some of the burden on the tiered regulation is eased – meaning $100 billion in assets is an artificial line that’s been drawn – if that gets eased, or if there’s less fear about growing over, you could see banks that are approaching $100 billion consider crossing,” Christopher McGratty, managing director and head of U.S. bank research at Keefe, Bruyette & Woods, said in an interview. “You could also see banks that are above $100 billion dipping down and acquiring banks of size, if the regulatory expectation isn’t as severe.”
Peter Dugas, executive director at Capco, said he expects the Biden-era FDIC M&A guidance to be rescinded, along with a new approach from the Department of Justice on M&A approvals and the elimination of Basel III endgame capital requirements since it inhibits larger banks from pursuing M&A deals. These will be influenced, though, by who is nominated to lead the regulatory agencies, he said.
But eased regulation, if it happens, won’t be a free-for-all.
“Even under a Trump administration … there’s going to be an expectation that a bank would be able to effectively manage that growth,” Dugas said.
Executives at banks as large as PNC have served as skeptics.
“I think people are a little bit too excited … that they’re just going to let everybody run free here,” PNC CEO Bill Demchak said at a conference in December. “I don’t see that at all.”
Deal volume, timelines and de novos
The three major bank failures of 2023 surely weighed on the M&A environment through the early part of last year. Deal volume across financial services companies rose fairly consistently, though the value of deals may have wobbled from quarter to quarter, according to a study released by KPMG. On a year-over-year basis, deal value jumped 55.7% in the first three quarters of 2024, compared with that period a year earlier, KPMG found.
Perhaps even more watched is the timeline for regulatory approval of M&A. During the Biden administration, deals took about nine months to close — 40% longer than in Trump’s first term, McGratty said.
FDIC Acting Chair Travis Hill listed, among his priorities, ensuring that mergers are approved in a “timely way.”
Hill also prioritized encouraging more de novo activity so the space has robust new entrants. Analysts said deregulation could ease the path for de novos, after several years…
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