Business & Investment

Why the wave of recent regional bank mergers isn’t over yet — and you can profit from it

Regional banks and medium-sized lenders facing competition from megabanks and financial technology players are in the mood to interact in 2021.

S & P Global Market Intelligence currently forecasts a $ 63.3 billion bank merger in 2021, up from $ 27.8 billion in 2020 and $ 55 billion in 2019, according to figures released Thursday. The figure of $ 63.3 billion represents the largest total since the global financial crisis. In 2022, S & P expects at least $ 60 billion in M ​​& A banking activity.

If you are lucky enough to own the individual shares of the bank you are buying, the acquirer will usually offer a premium price to the shareholders of the target company, which could lead to a rise in the stock price.

But this year, even exposure to regional banks and financial stocks has benefited investors. Financial Select SPD RETF

At the closing price on Thursday, the S & P 500 rose 20.8%, compared to a 30% rise year-to-date. SPDR S & P Regional Banking ETFs also outperformed the S & P 500, rising 25.6% so far in 2021.

Watch now: 14 dividend stocks from winning value managers as a wide range of markets hit record highs

On the big side of M & A, we will see more transactions in the flow of Citizens Financial Group.

$ 3.5 billion purchase of Investors Bancorp

As announced in July and at Huntington Bancshares
HBANOf a corporation

The $ 22 billion acquisition of all shares of TCF Financial Corp., based in Detroit, is said by Gregory Lyons, Debevoise & Plimpton’s corporate partner and co-chair of the Financial Institutions Group.

“It was accelerated by the pandemic and the desire to have a bank branch in the iPhone pocket,” Lyons told MarketWatch. “Many customers haven’t set foot in a bank’s branch for years. Often, local banks want an economies of scale to invest in technology.”

While large-scale transactions between listed banks continue to drive M & A, about 5,000 banks in the United States, including small community banks, also have small players.

“There are a lot of M & As under the radar,” Lions said.

reference: A major US company launching a borrowing boom after Labor Day

Examples of acquirers in this corner of the market include Investar Holding Corp.

According to Hovde Group analysts, it is expected to return to acquisition mode after swallowing Alabama-based lender Cheaha Financial Group Inc. earlier this year.

Sea Coast Banking Corporation.

of Florida stands out as another continuous acquisition bank as it pursues a strategy to acquire small banks in the fast-growing Florida market. HovdeGroup

Fintech, which pays from players such as Venmo, Stripe, Square and PayPal, is deregulated and robs banks of their business. Non-bank lenders such as Rocket Mortgage are also pulling the mortgage business apart.

“I would be surprised if there were at least a few significant transactions next year or in the area of ​​regional banks, including US banking subsidiaries of foreign banks in Canada, Japan and Europe,” Lions said.

However, alliances between mega banks such as JP Morgan Chase

Citigroup Co., Ltd.

And Bank of America Corporation.

Transactional hurdles related to antitrust laws and central bank guidelines remain unlikely.

Apart from antitrust laws, it is difficult to carry out large-scale bank mergers between globally systemically important banks (GSIB). Debeboise partner Ted Hassi, who focused on antitrust issues, said the Federal Reserve Board would need an economic analysis of risk, as explained by Dodd Frank. Stated.

However, larger regional bank alliances remain at the table.

“I don’t tell the big banks that you can’t close the deal,” Hassi said. “We need to approach it carefully. There is skepticism about large-scale mergers, and it takes a lot of stagnation and effort to complete the transaction.”

reference: Bank of America Vice Chairman and Chief Operating Officer Retires at End of Year

Such stories highlight potential transactions for S & P components such as Fifth Third Bank.

US Bancorp

M & T Bank

Regions Financial

PNC Financial Services Group


Zion’s Bancorp

First Republic Bank

And SVB Financial Group

Source: S & P

“Banks are under increasing pressure to merge due to the harsh earnings environment and dramatic changes in customer behavior during pandemics,” S & P principal analyst Nathan Stoval said in a statement. “More banks may pursue sales as some of our strong peers have decided to partner with other institutions.

S & P Global Market Intelligence predicts that there will be 229 transactions in 2021, 135 M & A transactions in the second half of 2021, and 70 transactions in the fourth quarter alone. Local banks will continue to account for the majority of sellers compared to the previous year.

Why the wave of recent regional bank mergers isn’t over yet — and you can profit from it Why the wave of recent regional bank mergers isn’t over yet — and you can profit from it

Back to top button