Big year for banking mergers, experts say

Thanks largely to the strength of the global economy, mergers and acquisitions have risen rather sharply for the past five years or so, topping well over 102,000 worldwide in 2019 and 2018 combined, up from roughly 85,000 in 2009-2010 amid the Great Recession, according to data compiled by Statistica.

Yet despite the dramatic impact of the coronavirus crisis on the financial system — or perhaps because of it — M&As are expected to pick up steam considerably before 2020 officially concludes. Entities deciding to join forces will likely be particularly commonplace in the banking sector, according to experts, as community and regional banks look to remain competitive.

2020 is poised to potentially be the biggest, most active year for M&As in the banking sector since 1998. That's according to Dick Bove, who serves as chief financial strategist at Odeon Capital. Responding to CNN Business in an email, the long-time banking analyst said the industry is in the midst of consolidation, which is forcing financial institutions to be more strategic about how they operate.

"The nation's biggest banks have set a target to increase their market share by taking business from the biggest regionals," Bove explained. "The competitive battle is likely to force the regionals to merge to gain the cash flows and scale necessary to ward off the attack."

Big year for notable M&As
1998 was a rather noteworthy year for M&As. Over that 12-month stretch, numerous regional banks were purchased by big players, including Wells Fargo (bought Norwest) NationsBank (joined forces with Bank of America) as well as CitiBank (merged with Travelers), according to CNN Business.

Last year was also highly active on the merger front. There were 271 bank mergers in the U.S. overall — up from 259 in 2018 — headlined by BB&T teaming up with SunTrust, Community First with ABB Financial and First Defiance with United Community, according to data compiled by American Banker.

Low interest rates incentivizing move to unite
With the shutdown leading to massive economic disruption, the Federal Reserve slashed interest rates to near zero, where they're expected to remain for the foreseeable future. It's in light of this economic reality that banks are more incentivized to consolidate to improve earnings and cash flow, Bove noted.

"Banks are running out of the benefits that have driven the strong earnings performances in the past decade," Bove added.

If you're going through an M&A or are wondering what the process is like and need help, Hudspeth Law Firm is equipped to provide you with all the guidance you need to get through all the legal ramifications involved. We work in a variety of industries so please contact us today for business law help.

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