Large US banks brace for heightened regulatory attention on M&A

The U.S. banking industry is bracing for even more scrutiny of large bank M&A.

Industry experts believe the new acting chairman of the Federal Deposit Insurance Corp. could soon add a regulatory hurdle for deals that result in a combined company with more than $100 billion in assets.

As of Dec. 31, 2021, 38 U.S. banks had more than $100 billion in total assets, exposing their future M&A to such a rule, according to S&P Global Market Intelligence data.

Large deal momentum

Since 2016, 14 U.S. bank deals involving a buyer with more than $100 billion in total assets or resulting in a combined company with more than $100 billion in total assets have been announced — and almost half were announced in 2021 alone.

Large U.S. bank deals have drawn increasing attention from regulators over the past year. U.S. President Joe Biden signed an order in July 2021 calling for more competition in the U.S. economy and an update on bank merger guidelines.

Meanwhile, a backlog of applications at the Federal Reserve resulted in several deal delays. More recently, the Office of the Comptroller of the Currency and the Fed announced a public meeting for U.S. Bancorp's announced acquisition of MUFG Union Bank NA, which had $127.86 billion in total assets at the end of 2021.

Martin Gruenberg took over as acting chairman of the FDIC on Feb. 5 and announced his agenda for the year, which included "a careful interagency review of the bank merger process."

The announcement came less than two months after a scuffle among FDIC board members in December 2021, in which Democratic board members backed a request for information and comment on bank merger rules. The request asked, in part, if the agencies should consider whether a merger exceeding a certain asset size threshold — "for example, $100 billion in total consolidated assets" — poses a systemic risk concern.

Banks under the microscope

Among large U.S. banks, several are unlikely buyers: JPMorgan Chase & Co. and Bank of America Corp. are precluded from acquiring due to a federal law that prohibits institutions that own more than 10% of the nation's deposits from purchasing depositories.

Wells Fargo & Co. sits just below that threshold, but is likely sidelined from bank deals because of longstanding regulatory issues related to a fake accounts scandal that surfaced in 2016.

Four U.S. banks sat just below the threshold with total assets between $90 billion and $100 billion: Credit Suisse Holdings (USA) Inc., Synchrony Financial, Comerica Inc. and Zions Bancorp. NA.

$100 billion question

The December request for comment likely provides a "roadmap" for what the agency will consider this year, Compass Point analyst Laurie Hunsicker wrote in a Feb. 8 note.

John Gorman, a partner at Luse Gorman PC, a law firm focused on financial institutions, also believes any increased scrutiny from the agency would likely focus on the $100 billion threshold.

"This is a sign of the times," Gorman said in an interview. Still, he added, "there's a lot of room for banks to consolidate before they get to that point."