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Bank Mergers Gaining Steam, But The Deals Are Still Small

Jul 9, 2014

By Saabira Chaudhuri

Deal activity among U.S. banks so far this year has hit the highest level since 1998, according to a new data from analysts at Raymond James, although the value of deals is small.

With the banking industry seemingly always in consolidation mode, Raymond James evaluates merger activity by counting the number of announced acquisitions relative to the number of U.S. banks at the start of the year. Through the first half of this year, the industry was on pace for 4% of banks to be acquired. That’s up from 3.5% for all of 2013, and marks the highest since 1998’s level of 4.6%.

The firm said it expects bank mergers to continue at a steady clip—although predominantly among the nation’s smallest banks, a trend that has been in place for some time now. “We see meaningful industry consolidation over the next 5-10 years rather than a large wave that occurs over just a few,” analyst Anthony Polini wrote in a note to clients Tuesday.

Bank deals have remained small for a variety of reasons. Among them: small banks are finding the cost of increased compliance onerous, while regulators are perceived as being discouraging of big deals. Raymond James’s data shows that 89% of the 1,195 acquisitions announced from 2009 through the second quarter of this year were for banks with less than $1 billion in assets.

Total deal value, although up by about 33% so far this year compared to the first half of 2013, is still well below the levels reported before the financial crisis. Data from SNL shows that the combined value of all banking deals in 2006 was $93.9 billion, while Raymond James’s data indicates this year is on pace for roughly $12 billion in deals.

Separately, Raymond James notes that acquisitions assisted by the Federal Deposit Insurance Corp. are less likely as the number of banks on the FDIC’s so-called “problem list” had dropped to 411 institutions as of the end of the first quarter, down significantly from the 888 institutions at the end of the same period in 2011.

http://blogs.wsj.com/moneybeat/2014/07/09/bank-mergers-gaining-steam-but-the-deals-are-still-small/