Report: Bank M&A remains steady despite headwinds

The pace of bank mergers and acquisitions was steady in the first five months of this year despite economic uncertainty, according to a report from consulting firm PricewaterhouseCoopers. .In March, Capital One announced its planned acquisition of Discover in a $35.3 billion deal. The following month, fintech Global Payments announced its pending acquisition of Worldpay LLC for $24.25 billion, in a three-way deal involving Fidelity National Information Services. According to PwC, deal volume is being driven by consolidation among smaller banks. “Of note, fintech and payments companies showed increased deal activity, and we continue to see financial institutions looking for buyers as they move to divest non-core business assets and redeploy capital to core areas,” according to PwC. “We continue to be optimistic about the second half of this year, as we emerge from uncertainty caused by tariffs and other policy changes.”Regulators under the Trump administration have reduced capital requirements and the frequency of stress testing. Also, the FDIC and Office of the Comptroller of the Currency are streamlining the merger approval process. However, regulators are still enforcing antitrust laws. Dwindling inflation could lead to lower borrowing expenses, support economic activity and loan demand and improve bank profits for dealmaking, according to the report. Inflation was measured at 2.4 percent on an annualized basis in May, which was near the pre-pandemic average. The PwC report aligns with a recent M&A forecast from Morgan Stanley. Banks could be entering a significant uptick in M&A as recessionary fears lessen and regulators are more favorable to deals, according to the report. The Morgan Stanley forecast came after annual M&A fell in recent years to 100-150 deals from its historical average of 200-300 amid tighter regulations. Morgan Stanley sees the country’s banking industry as being primed for additional consolidation, despite the number of U.S. banks having fallen 75 percent in the past 40 years. “We believe bank M&A would have already picked up had it not been for the elevated uncertainty brought about by the recent tariff announcements,” said Manan Gosalia, head of U.S. Midcaps Banks Research for Morgan Stanley. “With several ongoing tariff negotiations reducing macroeconomic risks, deal activity should begin to pick up in the second half of this year.”