Speaker: M&A market heating up due to eased regs, pent-up demand

The M&A market for banks to sell to non-traditional financial institutions is heating up due to pent-up demand and eased regulations under the Trump administration, said Barack Ferrazzano Partner Joseph Ceithaml Oct. 7 during the second day of the Bank Holding Company Association fall seminar in Edina, Minn. .The number of FDIC-insured banks has fallen, to around 4,400 from 5,213 in 2018. Fifty-two bank deals were announced in the third quarter of this year, the most in four quarters, when 59 were announced, according to S&P Global. “We are in a consolidating industry,” Ceithaml said. Deals are rising amid strong profitability, Ceithaml said. Credit quality is strong, with normalizing credit conditions leading to higher public stock prices, which translates to higher premiums. Regulators under the administration of Joe Biden were skeptical of cryptocurrencies and nonbank buyers. They took the former president’s direction to more closely scrutinize M&A as a directive to not approve any deals, Ceithaml said. Regulators under the Trump administration have taken a more open view of digital currencies. In March, the Trump administration announced banks would no longer need to secure FDIC approval for certain crypto-related activities. Making the M&A regulatory process harder for regulators is the spate of early retirements in the first few months of the Trump administration along with the recent government shutdown, Ceithaml said. Banks are also facing more pressure to scale or sell due to more economic uncertainty from tariffs and inflation, along with tepid loan growth, strong competition and succession planning challenges. Nonbank buyers can offer cash consideration and are able to pay a higher premium than traditional acquirers, Ceithaml said. They are sometimes willing to acquire a small charter to access deposit funding. Investor groups can maximize the sales price because they are often willing to pay a higher premium to acquire a charter, Ceithaml added. Several nonbanks have acquired community banks in recent years. In March, online lending platform SmartBiz acquired Chicago-based community financial institution Centrust Bank. Late last year, Houston-based nonbank LevelField Financial acquired Chicago-based Burling Bank. Community banks that are being acquired by nonbanks can face inefficient purchase-and-assumption agreements. More credit unions are acquiring banks, despite such deals facing legal challenges. One example is the 2021 planned acquisition of Lindstrom, Minn.-based Lake Area Bank by Royal Credit Union. The Minnesota Department of Commerce blocked the deal, which was eventually restructured for Royal to acquire three bank branches. The remaining branches were eventually acquired by Minneapolis-based First Resource Bank.