Big banks are currently exercising caution in pursuing acquisitions amid uncertainty surrounding the impact of the Trump administration's promised deregulation, as per industry insiders.
While signaling optimism about potential deregulation, bankers and industry leaders suggest that major mergers are being delayed due to concerns over regulatory scrutiny, potential losses on banks' balance sheets, and the inherent complexities of transactions involving heavily regulated institutions.
Challenges in M&A activity are emphasized by Cheryl Pate, a senior portfolio manager at Angel Oak Advisors, who anticipates consolidation among smaller banks with reservations about larger mergers facing heightened scrutiny.
For larger banks, strategic acquisitions are on the horizon, with companies like PNC Financial Services, U.S. Bancorp, and Truist Financial often cited as potential targets for expansion.
The recent pullback on merger guidelines by the FDIC, implementing less restrictive rules, has been noted as a move to provide more certainty to the industry after the stringent framework of the previous administration.
The regulatory landscape's uncertainty, combined with lingering supervisory issues, continues to pose challenges for the M&A environment, contrasting with the deregulatory hopes following the 2020 election. Industry executives express discontent with delays in deal approvals and a decline in major transactions.
Noteworthy examples include the stalled $35 billion merger between Capital One and Discover Financial Services pending regulatory approval, and Toronto-Dominion Bank's failed $13.7 billion acquisition of First Horizon, illustrating the potential risks and delays associated with regulatory reviews.
The M&A slowdown, exacerbated by regulatory complexities and market conditions, as well as persisting vulnerabilities within the banking sector necessitating regulatory improvements, underscores the cautious stance of industry players awaiting a clearer regulatory framework for potential mergers.