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Regional US banks talking M&A as scale remains top of mind

Facing a difficult rate environment, an increasingly volatile stock market and a presidential election next year, some bankers think deal activity could be on the rise.

At the Barclays Global Financial Services Conference this week, multiple banks said they were either actively seeking deals or would be open to a transaction. At Raymond James' U.S. Bank Conference last week, bankers reported more sellers were looking to do a deal before an uncertain 2020. Scale remained a top motivator, raising the specter of another billion-dollar merger-of-equals after the BB&T Corp. - SunTrust Banks Inc. and TCF Financial Corp. - Chemical Financial Corp. tie-ups earlier in the year.

"I just had a conversation with a $30 billion bank about their M&A appetite. They have been a pretty active acquirer of traditional community banks, and they said that their top priority is an MOE," said Christopher Olsen, managing partner for Olsen Palmer LLC, a deal advisory firm.

"Scale was and continues to be a key issue and primary driver of consolidation," he said in an interview.

Associated Banc-Corp made it clear the bank was on the hunt for a deal. Speaking at the Barclays conference, CEO Philip Flynn said there have been "a lot of conversations" and that many of the 750 banks in Associated Banc's three-state footprint were under pressure.

"You're seeing lots of small banks come together to try to gain efficiencies," Flynn said. "And you're also seeing a lot of both inbound [calls] to us and us outbound calling going on. So we're actively looking for the right opportunities that fit into our network, and you should expect to see us continue to look for those."

Atlantic Union Bankshares Corp. management also said the bank is on the lookout for more deals, with an executive noting that the company wants to deploy its excess capital by repurchasing shares or in an acquisition.

While several banks said they would only pursue a deal that made eminent financial and strategic sense, they simultaneously opened the door to very large deals by saying only banks of size would warrant consideration. That was the case for U.S. Bancorp, which discussed M&A during its Sept. 12 investor day. CEO Andrew Cecere said the bank was not actively seeking a deal but that "it would not be prudent of us to put our head in the sand." He said the bank's strong stock price — shares trade at roughly 241% of tangible book value — meant there are a lot of accretive deals to be had. But he said financially beneficial deal terms were not the only requirement and that the bank would only consider whole-bank deals that also offered significant strategic value.

"We wouldn't do some small transaction that's going to take our eye off the ball and the progress we're making. It would have to be material. It would have to add to the capabilities, and/or the product set, or the scale in a material way," Cecere said.

M&T Bank Corp. executives said they might be open to a deal of size. At the Barclays conference, CFO Darren King said the bank would consider a potential MOE should a peer approach the bank.

Several other regional banks were more negative on the possibility of M&A. Investors and analysts have for years tabbed Regions Financial Corp. as a potential seller or MOE partner, but CEO John Turner shot down such speculation. "We're not interested in bank acquisition today," he said, adding that management believes staying independent is the best path.

PNC Financial Services Group Inc.'s CEO said the bank remains skeptical of potential M&A while qualifying that "I should never say never." KeyCorp's CEO was similarly pessimistic, saying depository M&A was not a priority of the bank. And Huntington Bancshares Inc.'s CFO said the company would look at bank acquisitions but that numerous uncertainties rendered deal-making less palatable.

Those expressions of skepticism might prove prescient, especially in the realm of large-bank MOE. While it seems there are more conversations, such deals are exceedingly difficult to execute, Olsen said.

"I've been hearing MOEs as a very good idea on paper for over a decade now," he said. "In reality, they're probably the hardest deal to get done."