July 10 (The following statement was released by the rating agency)
Catalysts are beginning to emerge that could prompt an
increase in merger and acquisition activity in the U.S. banking sector over the
immediate term, according to Fitch Ratings.
The growing factors include higher stock values for healthy institutions, a
strategic focus on growing loans possibly via acquisition, a view toward
mitigating potential interest rate risk, a perception that sufficient scale is
required to manage higher regulatory and compliance costs, and fatigue among
the managements and boards of potential sellers. Near-term M&A activity is
likely to remain muted.
In Fitch's opinion, increased cost structures, growing economies of scale that
benefit larger institutions, a desire for growth, and intense competition for
new loans have spawned an environment that will promote increased banking M&A.
Consolidation activity to this point has been delayed for several reasons,
including a shifting and growing regulatory focus and compliance efforts that
led to increased costs and in some cases held up the consummation of deals.
Banks with high cost structures, elevated efficiency ratios and lower capital
ratios than peers are likely targets of consolidation. Banks with operations in
growing geographic markets, a presence in asset classes that performed well
through the credit crisis, and relatively lower stock market valuations as
measured by price-to-tangible book value (p/tb) are also considered more likely
to be acquired.
Fitch believes consolidators of the industry will be efficiently run banks with
strong earnings performance and therefore capital generation ability,
institutions with sound regulatory processes and procedures, and those with high
stock market valuation as measured by the p/tb.
Please see our upcoming special report, "U.S. Bank Mergers and Acquisitions,
When Will the Catalysts Kick-in?" which will be available on our website