US banking M&A set for ‘big bounce’

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banking M&A

Surge in mergers and acquisitions could reduce number of banks in the US over next decade, according to report. 

There’s going to be a dramatic increase in merger and acquisition activity in the US banking sector, according to a recent report from investment manager FJ Capital.

Research shows that community and regional bank M&A has already recovered more rapidly than anticipated, according to the report. The investment manager expects recovery will improve further as the broader economy heals from the impact of the pandemic.

Recent Mergermarket data points to a global rebound in M&A across all sectors after slump this year because of the Covid-19 pandemic. 

Our expectations are that activity will begin to pick up in the first half of 2021 and accelerate through the year

A continued period of bank M&A activity could result in a drop in the total number of banks in the US. The drop could be as much as 50% over the next 10-15 years, the report says.

The total value and number of banking M&A deals in 2020 is at its lowest point since 2009, according to FJ Capital. This nadir comes on the heels of last year’s combined M&A deal value of about $60bn the highest since 2007.

The investment firm said it expected a fall in deals because it is typical in recessionary periods. However, the company also predicted a subsequent rebound as the economy starts to once again gain ground. It also found that extremely low interest rates were beginning to reduce the profit margins of smaller banks in particular.

“Our expectations are that activity will begin to pick up in the first half of 2021 and accelerate through the year and continue to be robust over the next three to five years,” the FJ Capital report said, adding that the banking industry has reached a turning point in the credit cycle and is hitting a “positive inflection point” in community and regional banks.



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