The stock market slump has created uncertainty over bank consolidation in 2019.
Industry observers are divided as to whether activity will keep pace with the 258 deals, and nearly $30 billion in volume, of last year. The thought is that it will likely take time for buyers and sellers to adjust pricing to account for swooning stock prices. The KBW Nasdaq bank index fell by 21% last year.
At the same time, the underlying reasons for bank M&A remain the same, including a need for cheap deposits, operating leverage and scale, industry observers said.
“Unless there’s a change in the economy, low-cost deposits will remain very valuable,” said Bob Wray, managing director at the investment bank Capital Corp. “Low-cost, stable deposits are the strongest driver for community banks.”
American Banker recently discussed M&A with Wray; Blaine Jackson, CEO of NewDominion Bank, a division of Park National; Brendan Duffey, president and CEO of Uwharrie Bank; Jonathan Hightower, a lawyer at Bryan Cave Leighton Paisner; and Cheryl Pate, an analyst at Angel Oak Capital Advisors.
The following is an edited transcript of their responses.
What are your expectations for bank M&A this year?
CHERYL PATE: We believe M&A will continue to accelerate. There’s a need for scale. Regulatory costs are still high and we expect the pace of earnings growth to slow as the benefit of the corporate tax cut fades and cost of funds continues to rise. The lifting of regulatory asset thresholds should be an added boost to deals at the smaller end of the spectrum.
JONATHAN HIGHTOWER: I expect a modest slowdown. The market sell-off currently taking place may get us off to a slow start, and the trend is certainly that there are fewer and fewer desirable targets each year.
BLAINE JACKSON: The increased volume of bank