Fitch: Emerging Catalysts Could Spur U.S. Bank M&A Activity



Catalysts are beginning to emerge that could prompt an increase in merger and acquisition activity in the U.S. banking sector over the immediate term, according to Fitch Ratings.

The growing factors include higher stock values for healthy institutions, a strategic focus on growing loans possibly via acquisition, a view toward mitigating potential interest rate risk, a perception that sufficient scale is required to manage higher regulatory and compliance costs, and fatigue among the managements and boards of potential sellers. Near-term M&A activity is likely to remain muted, Fitch said.

In Fitch’s opinion, increased cost structures, growing economies of scale that benefit larger institutions, a desire for growth and intense competition for new loans have spawned an environment that will promote increased banking M&A. Consolidation activity to this point has been delayed for several reasons, including a shifting and growing regulatory focus and compliance efforts that led to increased costs and in some cases held up the consummation of deals, Fitch noted.

Banks with high cost structures, elevated efficiency ratios and lower capital ratios than peers are likely targets of consolidation. Banks with operations in growing geographic markets, a presence in asset classes that performed well through the credit crisis, and relatively lower stock market valuations as measured by price-to-tangible (p/tb) book value are also considered more likely to be acquired, the ratings agency said.

Fitch said it believes consolidators of the industry will be efficiently run banks with strong earnings performance and therefore capital generation ability, institutions with sound regulatory processes and procedures and those with high stock market valuation as measured by the p/tb.

Fitch said its upcoming special report, “U.S. Bank Mergers and Acquisitions, When Will the Catalysts Kick-in?” will be available on its website www.fitchratings.com.


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