Fitch: U.S. Bank M&A Activity Poised to Rise as Market Dynamics Change

Thu Jul 11, 2013 11:29am EDT

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(The following statement was released by the rating agency) CHICAGO, July 11 (Fitch) The U.S. banking industry is poised for a potential rise in M&A activity over the immediate term, mainly among smaller and more-regional focused institutions, according to a new Fitch Ratings report. This report provides a more comprehensive follow up to a Fitch comment on bank M&A published July 10. Fitch believes there is a need for bank M&A activity based, in part, on increased cost structures for most banks, the growing economies of scale that will benefit larger institutions, and the desire to grow into new geographic markets and lending products. Furthermore, intense loan origination competition is currently plaguing the industry. An increase in acquisition activity will remove some industry capacity, which Fitch views positively as too many banks are chasing too few lending opportunities. Catalysts have begun to emerge that will bring an increase in activity over the intermediate term. These include: --Higher stock market values, particularly for healthy institutions; --Strategic focus on growing loans potentially via acquisition; --Emphasis on mitigating potential interest rate risk; --Belief that sufficient scale now matters more due to higher regulatory and compliance costs; --Fatigue on the part of bank management and boards at potential sellers. From a credit perspective, Fitch's views on potential acquisitions typically focus on the level and depth of due diligence done by the acquiring institution, the acquirers knowledge of the target market, the pro forma composition of the loan and securities portfolios, the pro forma capital ratios of the combined entity, as well as the ability to integrate and realize estimated cost savings from potential transactions. Fitch also views prices paid for acquisitions, terms and type of financing, strategic rationale, as well as cultural fit of some institutions as potentially affecting ratings. The full report 'U.S. Bank Mergers and Acquisitions: When Will the Catalysts Kick-In?' is available at 'www.fitchratings.com'. Contact: Justin Fuller, CFA Director +1-312-368-2057 Fitch Ratings, Inc. 70 West Madison Chicago, IL 60602 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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