New M&A Record Set For American Banks

During the worst part of the pandemic, M&A negotiations between banks were frozen but now bank M&A transactions are at their highest since 2008.

US bank mergers and acquisitions are setting new records. The number of deals announced so far this year is the biggest in any year since 2008, during the Great Recession. 

According to S&P Global Market Intelligence, more than $63 billion in banking M&A transactions will likely be completed by the end of 2021, compared to the $27.8 billion concluded in 2020, and 2019’s $55 billion worth of deals.

In September, Minnesota-based US Bancorp gobbled up Mitsubishi UFJ Financial’s US retail business, MUFG Union Bank, for $8 billion. Earlier this year, New York–based M&T Bank added New England’s People’s United Financial to its crown for $7.6 billion. Webster Financial Corp extended its reach with Sterling Bancorp for $5.1 billion. Citizens Financial is merging with Investors Bancorp for $3.5 billion, and there are a plethora of smaller bank tie-ups. 

During the worst part of the pandemic, M&A negotiations between banks were frozen, with executives fearing that corporate customers would not be able to repay their loans. But loan portfolios didn’t crash, and bankers gained confidence that what existed on the books was safe.

Acquisition conversations resumed at the end of 2020. Low interest rates, which impact net interest margins, are contributing to consolidation in the sector. The average net interest margin is down to 2.5%.

Regional banks face competition from mega financial institutions and agile fintech startups. This complex environment pushes smaller banks to accept mergers to gain the necessary scale to invest in technology and offer their customers the digital apps that they expect post-Covid. That’s why Bank of Commerce Holdings tied the knot with Columbia Banking System, and First Western Financial merged with Rocky Mountain Bank.

Other institutions are focused on geographic expansion. With the acquisition of Mitsubishi UFJ Financial’s US-based retail business, US Bancorp has boosted its position in the California market. Webster Financial’s tie-up with Sterling Bancorp, meanwhile, gives the bank great stature in the Northeast region.

There is a “contagion effect,” Collyn Gilbert, director of strategy at Valley National Bancorp, said in a Street Talk podcast. “You don’t want to be the last bank left behind.”