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Bank mergers are on track to reach the highest level since the financial crisis

Banks are at a pace of merging this year at a level not seen since the 2008 financial crisis.

This is a sharp recovery from last year when the economy soared and many regional and community banks shelved their merger plans. Bank executives are now more confident about what the future holds, but some banks find it difficult to achieve on their own. The economy has recovered in many ways since 2020, but demand for loans remains low and profits from loans are modest.

By late September, banks had announced more than $ 54 billion in transactions, according to Dealogic. As a result, industry mergers and acquisitions are accelerating towards the largest year since 2008, when some major banks had to sell themselves to stop the collapse. At this point last year, the bank announced a merger of only $ 17 billion.

Banks typically turn their potential target loan books upside down, looking for risky loans and other warning signs, and then spending weeks or months before agreeing to get them. But the Covid-19 pandemic confused the process. For months, lenders struggled to assess the creditworthiness of their own customers, much less their competitors.

Kevin Riley, Chief Executive Officer of First Interstate Banc System, said: Ltd

FIBK 2.85%

In Billings, Montana.

However, filings with executives and regulators did not realize the expected wave of loan defaults, and by the end of last year serious merger conversations had resumed.

This month, the first interstate highway FIBK 2.85%

Agreed to buy Great Western Bancorp, a local lender Ltd

In a transaction that increases assets to over $ 32 billion.

“”[Banks] Nathan Stoval, an analyst at S & P Global Market Intelligence, said: “They no longer see a deal trying to catch a falling knife.”

2019 was also a big year for bank mergers, but this year more major regions are active. Therefore, this year we have fewer transactions than at this point in 2019, but the overall value is higher than it was two years ago.

Minneapolis-based US Bancorp said last week that it plans to acquire MUFG Union Bank’s core retail banking business to increase its presence on the west coast.Another major region, Citizens Financial Group Ltd,

He said he plans to acquire Investors Van Corp in July. Ltd

According to regulatory filings, when the pandemic broke out in 2020, Investors Bank was shelving merger negotiations with other banks.

The Federal Reserve reduced interest rates to near zero when a pandemic occurred. Also, low interest rates make it more difficult for banks to profit from the bread and butter lending business. According to the Federal Deposit Insurance Corporation, the average net interest margin, an indicator of loan profitability, reached a record low of 2.5% in the second quarter.

The Bank of Colombia is planning to buy a smaller commercial bank, which was considering various options to overcome the ever-narrowing industry margins.


Photo:

The Wall Street Journal CHONAKA SINGER

Small banks are also struggling to compete with Mega Bank’s high-end digital products and technologies.

The Bank of Commerce Holdings, based in Sacramento, California, began courting potential merger partners in the spring of 2021. With $ 1.9 billion in assets, the bank’s board and management have long considered various options to overcome the ever-narrowing industry margins, including acquisitions. According to a major bank, CEO Randy Eslick said. It took less than three months to close a deal with the $ 18 billion Colombian banking system Ltd

Tacoma’s wash.

The deal was announced in June and the integrated bank will have the resources to invest in technology and other areas (trust sector, wealth management, professional lending).

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“These types bring technology to the table that we couldn’t get,” Eslick said. “At the end of the day, there are more arrows in the quiver.”

Scott Wylie, CEO of the $ 2 billion First Western Financial, said the pressure to scale up has increased in recent years. Ltd

In Denver. In July, First Western announced that it would acquire the parent company of nearby Rocky Mountain Bank, a smaller bank...

“For $ 300 million, $ 500 million, and $ 700 million banks, we used to have a nice little business that we could go for a long time,” Wiley said. “Recently, it’s really difficult.”

Home Banc Shares based in Conway, Ark Ltd

He said he would buy Happy Bancshares for over $ 900 million this month. Within a few weeks, CEO John Allison proposed another deal.

“Someone told me,’Johnny, my body isn’t cold yet … and they’re bringing in all these other deals,'” Alison said.

Write to Orla McCaffrey (orla.mccaffrey@wsj.com)

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Bank mergers are on track to reach the highest level since the financial crisis

Source link Bank mergers are on track to reach the highest level since the financial crisis

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