These are fine times at some of America's regional banks.
Regulatory easing – in particular the decision to raise the threshold for a firm to be considered of systemic importance from $50 billion of assets to $250 billion – has paved the way for a new cycle of merger and acquisition activity.
The recent US tax reform measures are also an important factor fuelling interest in banks as acquisition targets. A new breed of super-regionals may emerge as banks with $100 billion to $150 billion balance sheets start to flex their expansionist muscles.
That is the hope of the teams of M&A bankers poised to reap the fee income from these deals as and when they come.
However, as Euromoney explains, the lion’s share of activity will be at the smaller end of the spectrum, which have seen their valuations rise as larger rivals look to expand their reach.
The logic of increasing deposits as interest rates rise is a tried-and-tested one, but does it stand up in today’s banking environment?Maybe regional and community banks should be focusing more on their own customers’ expectations and the challenges they face from sophisticated digital rivals instead.
Bank CEOs at the mid-sized lenders therefore need to determine the extent to which an acquisition might distract them from the pressing need to match the kind of customer offerings that big tech now have as standard.
Bruce Van Saun, CEO at Citizens Financial, believes that the priority should be digital delivery at those banks that are ‘in the middle of the river’.
Something else is happening too.
Regional banks, whose corporate banking arms have been for so long focused on lending alongside the occasional bit of hedging, are having to keep pace with clients whose needs are growing ever more sophisticated. Regional banks have widely differing capital-markets offerings, a reflection of their local clients’ differing needs.
However, they all face tougher competition from bulge brackets looking to widen their net. Regulatory easing is good news for the smaller banks as they build their capital-markets offerings, but the resource required to comply with regulation still means that for these banks acquiring a platform is often a lot easier than building from scratch from a regulatory perspective.
Euromoney has spoken to four US lenders about the challenges they face in building up their capital-markets businesses: Fifth Third Bancorp, Regions Financial Corporation, KeyCorp and Citizens Financial Group.
