With Wednesday’s announcement that BB&T has a deal in place to acquire Susquehanna Bancshares in a $2.5 billion deal, I felt inspired to focus on the mergers & acquisitions space today. You see, if 2013 was the year of the merger-of-equals (MOEs), it seems that 2014 has become the year of “seeking size and scale.”
As I’ve shared in past posts, 2013 was characterized by a series of well-structured mergers which produced a dramatic improvement in shareholder reaction to bank M&A. For example, Umpqua & Sterling, United Financial Bancorp & Rockville Financial and Bank of Houston & Independent Bank. Over the past few weeks, we’ve seen some pretty interesting transactions announced that are not MOEs; specifically, Sterling Bancorp buying Hudson Valley Holding in New York, Banner picking up AmericanWest Bank in the Pacific Northwest and the afore-mentioned BB&T deal.
Don’t Be Fooled, Size Matters
As evidenced by the Sterling and Banner acquisitions, the desire for scale and efficiencies is prompting certain institutions to expand. While regulatory costs and concerns have been cited in previous years as deterents to a transaction, isn’t it interesting that both of these deals position the acquiring institution near the $10Bn threshold (*important as crossing this asset threshold invites new levels of scrutiny and expense). But like John Thain suggested earlier this year, “the key is being big enough so that you can support all of the costs of regulation.” Still, comments made by Richard Davis, chairman and chief executive of U.S. Bancorp, about the BB&T agreement should temper some enthusiasm about the biggest players jumping in to the M&A space a la the $185 Bn-in-size BB&T. “This is not a deal you’d ever see us do,” he said at conference in New York hosted by Bank of America Merrill Lynch, adding “it’s both out-of-market and it’s fairly expensive.”
I’m Serious, It Matters?!?
Earlier this year, Deloitte published The Top Ten Issues for Bank M&A. In light of the BB&T deal, it is worth revisiting. To open, the authors opine “size matters when it comes to regulatory constraints on the banking sector: The bigger the players, the more restrictions on banking activities, including M&A. Banks with less than $10 billion in total assets face the least restriction, while the very largest Systemically Important Financial Institutions (SIFIs) experience the highest level of constraints. Among the major regulatory actions that are expected to hold considerable sway over bank M&A in 2014 are the Volcker Rule, Basel III capital requirements, global liquidity rules, stress testing, and anti-money laundering (AML) and Bank Secrecy Act (BSA) compliance laws.”
Who I’m Taking to Buy a Lottery Ticket
Finally, a tip of the hat to Frank Cicero, the Global Head of Financial Institutions Group at
Jefferies. He reminded me on Wednesday that every prediction he made in a piece he wrote for BankDirector.com at the beginning of the year has come to pass…fewer MOE’s, bigger premiums, regional banks returning to bank M&A. Personally, I’m wondering if he wants to walk into the lotto store with me this weekend?