Some bankers are worried the current expected credit loss accounting model will discourage M&A and add a new wrinkle to deal pricing.
![]() |
At the Janney Community Bank CEO Forum in Atlanta on Sept. 19, one community bank executive said he believes his bank could use CECL to its advantage to negotiate lower pricing from targets. Analysts said some community banks are shying away from deals until CECL's effects on M&A modeling are fully known.
CECL's treatment of acquired loans is a concern among potential buyers because it will complicate M&A modeling by "double-counting" the credit risk for acquiring loans.
"It's going to hurt M&A with the double dipping on the merger economics," said CapStar Financial Holdings Inc. CFO Robert Anderson.
But while Home Bancorp Inc. CFO Joseph Zanco agrees that CECL's acquisition accounting "does not make sense," he believes the double-count concern could benefit the bank when making deals.
"As a buyer, I could see us actually using that to our advantage ... [to] say, 'I've got to do this double accounting, so I've got to pull your price down,'" he said.
Some banks have taken a wait-and-see approach, backing away from potential deals or slowing down their acquisition pace until they see the full effects of the new standard, said Matthew Veneri, managing director and co-head of investment banking at Janney Montgomery Scott.
Veneri also said M&A activity may slow post-CECL because the standard will encourage banks to do only "disciplined" deals due to the double-count concerns.
"If you think about the long-term impacts of CECL, maybe the only good thing about it is that maybe it will undo the intention of people to go in and do a deal that from an accounting standpoint structurally boosts your earnings but doesn't really change the business," he said.
While an acquisitive bank could try to leverage CECL's accounting hit in pricing negotiations, its effect on deal earnback periods could also end up damaging the bank's offer.
Timothy Coffey, director of banks and thrifts at Janney Montgomery Scott, said one bank is concerned that its 2020 implementation date will decrease the competitiveness of its M&A bids. A target might discount the CECL-compliant bank's bids since it will have to report a longer earnback timeline than an acquirer who has not yet implemented CECL. The stock market has punished banks that have announced deals with long earnback timelines, and a decline in the acquirer's stock can immediately decrease the value of its bid.
However, not all analysts agreed that CECL will have a large impact on the amount of deals. "It could complicate a lot of things for the buyers, but I don't think it will prevent deals from occurring," said Brian Martin, director of banks and thrifts at Janney Montgomery Scott.
Sal Inserra, an office managing partner at Crowe LLP, said the only difference between the pre- and post-CECL worlds is timing.
"CECL is just noise. At the end of the day ... it's the same amount of loss as it was under the incurred loss model. It's a timing difference," Inserra said.

