Banks in Louisiana abandon consolidation proposals
Slowdown in Bank Mergers and Acquisitions Due to Regulatory Hurdles and Economic Factors
In recent years, the banking sector has seen a significant decrease in mergers and acquisitions (M&A) activity. This trend is primarily attributed to increased regulatory scrutiny, elevated interest rates, longer deal timelines, and challenges in integration and achieving expected synergies.
Key factors contributing to this slowdown include a stricter regulatory environment, high interest rates and monetary policy, integration risks and costs, and risk management and capital constraints.
Heightened regulatory reviews, especially for larger deals over $10 billion, have nearly doubled deal closing times compared to a decade ago. This stricter scrutiny acts as a significant brake on large-scale bank mergers. Hawkish monetary policy has increased debt financing costs and lowered valuations, making M&A less attractive or feasible for banks. Banks face increased expenses and risks around merging operations, integrating acquired businesses, and achieving projected efficiencies or synergies. Challenges in these areas discourage aggressive M&A activity. Regulatory limits on acquisitions relative to Tier 1 capital and stricter risk management requirements also restrict banks' ability to pursue acquisitions freely.
These factors have led to a diminished pace and scale of deals in the banking sector. While acquisitions still occur, investors and institutions favor smaller, more strategic cash-flow accretive deals rather than large transformative mergers.
Recent events highlight this trend. The all-cash merger between MC Bancshares and Heritage Nola, valued at $6.5 million, was announced in July 2023 but has been pushed to 2024 due to regulatory hurdles. Similarly, the largest canceled bank M&A deal last year was worth $13.4 billion between TD Bank and First Horizon. Other notable cancellations include the $186 million merger between OceanFirst Financial Corp. and Partners Bancorp, which was shelved due to regulatory delays.
Despite these challenges, the M&A space is expected to see more activity in 2024 as concerns over regional bank failures and interest rates clarity fade.
MC Bancshares is the holding company of the $454 million-asset MC Bank & Trust Co, a Louisiana-chartered state bank, and Heritage is the holding company of the $171 million-asset Heritage Bank of St. Tammany, a federally chartered savings bank. Chris LeBato, president and CEO of MC Bank, expressed that MC Bancshares is a well-capitalized community bank open to acquiring more banks. Christopher Maher, OceanFirst Financial's CEO, expressed a long-term interest in pursuing M&A opportunities once the headwinds that hampered deal activity dissipate.
The Biden administration passed an executive order in July 2021 to update guidelines for bank mergers, increasing scrutiny. Depressed bank valuations have hampered M&A activity, but recent equity rallies could provide a tailwind for future deal-making.
In the case of the terminated MC Bancshares and Heritage Nola merger, the termination agreement does not impose penalties or liabilities on either party for costs and expenses related to the terminated transaction. Heritage Nola remains focused on building value for its stockholders, customers, and community. At the time, Heritage Nola stated that it was unable to provide any additional information as to whether or when the merger would close. No information about purchasing licensing rights was provided in the article.
[1] Source: S&P Global Market Intelligence, Federal Reserve, FDIC [2] Source: American Banker [3] Source: Bank Director [4] Source: The Wall Street Journal
Read also:
- Stone mining has transformed the once renowned 'Sada Pathor' into a desolate, post-apocalyptic landscape.
- The Developmental Journey of Digital Supply Chains
- In the Heart of Soho, Manhattan, a New Brewery Emerges Underground
- Financial regulatory body OCC imposes Anti-Money Laundering (AML) disciplinary action against Wells Fargo.
