US midterm elections are likely to indirectly drive bank M&A deals by serving as a reminder that the current administration is entering its final two years, advisers say.
The outcome of the elections will not change the current bank M&A environment or any of the current bank regulatory leadership, but a surge by the Democratic Party could create a sense of urgency for deals by signaling that the Trump administration's relatively accommodative stance toward consolidation is fleeting, advisers said.
Some fear that the next presidential administration could bring a regulatory environment similar to that of the Biden administration, which gave bank M&A more scrutiny, Olsen Palmer LLC Managing Partner Christopher Olsen said in an interview.
"There's a lot of discussion, a lot of interest among buyers and sellers. And I suspect it's going to get significantly amplified in two weeks, the day after the election, especially if things go heavy blue," he said. "I think especially sellers will say, 'Oh, boy, to the extent that this is a precursor of two years from now, it's clear we've got a two-year window. We're on the clock.'"
That could lead to elevated seller supply, and also to increased urgency from buyers seeking to get deals done while they can, he added.
Regardless of political party, the uncertainty of what the next presidential administration could bring is enough to motivate institutions to act while they are familiar with the regulatory expectations, Castle Creek Advisors IV LLC Managing Partner Sundeep Rana said in an interview.
"To avoid that uncertainty, if people are kind of looking to grow via M&A, it certainly feels like there's a window where folks say, 'Hey, let's just take a bird in hand versus rolling the dice going forward,'" Rana said.
Window watching
Banks considering a sale in the next five years are debating transacting now, earlier than they might have otherwise, or waiting to sell, risking missing their window, Stephens Inc. Managing Director Frank Sorrentino said in an interview. Some banks announcing sales today are already acting for that reason, he said.
The most a wave of democratic victories in the US House of Representatives or Senate would do in the short term is create drama for certain banks, Piper Sandler Cos. Co-Head of Financial Services Investment Banking Bill Burgess said in an interview.
"Congressional 'hearing risk' exists for 2027 and 2028, but I don't think that dissuades banks from pursuing strategic transactions if they are compelling today," Burgess said.
The open regulatory and political window applies most to large-cap institutions, Burgess said. There has not been a bank seller with assets of more than $100 billion since 2021, and if a bank of that size wants to sell in the near-term, the next two years are a prime time, he said.
Across sectors, the desire to make deals is high, and larger companies disproportionately are pursuing acquisitions because they fear large-scale M&A will become more difficult under a future administration, Lazard Inc. Chairman and CEO Peter Orszag said in an Oct. 22 earnings conference call.
Smaller banks are also trying to make sense of the regulatory outlook.
"I think if there's a blue wave that happens on the House and the Senate side, I think some people are going to get more focused on getting something done before the White House seat comes up in two more years," Equity Bancshares Inc. Chairman and CEO Brad Elliott said in an Oct. 15 earnings conference call. "So I think over the next 24 months, I think there could be a wave of activity that comes to the marketplace."
Longer outlook
The bank M&A environment is determined by more than the sitting regulatory regime, advisers noted. As long as valuations and profitability remain tailwinds in the market, some banks will continue to transact regardless of administration changes, Sorrentino said.
Recent moves by bank regulators have also given the industry hope that the regulatory window will remain open longer than previously thought, Sorrentino said.
The Federal Deposit Insurance Corp. proposed new rules for bank M&A that would set clearer processing expectations, expand access to expedited treatment for banks with lower regulatory ratings and reduce procedural hurdles for smaller transactions.
"That's pretty substantial, and just putting more clarity around the timing of these things," Sorrentino said.
If the next administration wants to change the regulatory environment again, it will not immediately shut down banks' transacting window, he said. "That's going to take a couple of years if that has to change again."
