Future of big-bank M&A could hinge on 2020 election
WASHINGTON — Similar to the passage last year of the Senate’s bipartisan regulatory relief bill, the proposed merger of BB&T and SunTrust Banks is a sign of the industry moving forward nearly 10 years after the Dodd-Frank Act.
Some have suggested that the deal could spur others like it while the lead regulator of national banks, Comptroller of the Currency Joseph Otting, reacted to the news by praising both institutions and describing the current point in the economic cycle as “a relatively high-confidence period to conduct acquisition activity.” (Otting’s agency does not supervise BB&T or SunTrust.)
But a prolonged environment conducive to M&A growth is hardly a sure thing, and that is thanks in some part to a very unpredictable political environment. Other regional banks contemplating a similar move should bear in mind that they may have a narrow window of opportunity.
Two outspoken Democratic leaders raised questions about the BB&T-SunTrust deal on Thursday — the same day the merger was announced — both expressing concern about how large the merged bank will grow to become. It is estimated that the combined institution will have $442 billion of assets.
Sen. Elizabeth Warren, D-Mass., sent a letter to Federal Reserve Board Chair Jerome Powell criticizing the Fed’s record on scrutinizing mergers. (The central bank must approve the deal.)
“The board's record of summarily approving mergers raises doubts about whether it will serve as a meaningful check on this consolidation that creates a new too big to fail bank and has the potential to hurt consumers,” Warren said in the letter.
Earlier in the day, House Financial Services Committee Chairwoman Maxine Waters criticized the deal more directly. In a statement, she argued that the proposed merger was made possible by last year’s reg relief law, which she called a “deregulatory giveaway.”
“This proposed merger between SunTrust and BB&T is a direct consequence of the deregulatory agenda that Trump and Congressional Republicans have advanced,” she said. “The proposed merger raises many questions and deserves serious scrutiny from banking regulators, Congress and the public to determine its impact and whether it would create a public benefit for consumers.”
Of course, some industry observers said criticism of the deal from those supporting the post-crisis regulatory regime was unfair since it was that very regime that has forced companies to weigh their consolidation options.
“It is disingenuous for policymakers to saddle banks with excessive compliance costs and then criticize them for pursuing the consolidation and economies of scale necessary to achieve profitability in such a heavily regulated environment,” said Daniel Crowley, a partner at the law firm K&L Gates.
And it is hard to imagine the Democratic criticism having much practical influence on regulators’ consideration of the banks’ merger application. While public scrutiny of the merger is likely, and some analysts predict there will be a public hearing, the announcement of the deal is a sign that the Fed is receptive to the two banks' combining.
But the political winds in Washington are volatile, and a policy environment that is warm to big M&A deals today could turn into resistance tomorrow. With a Democratic field of presidential candidates, including Warren, increasingly leaning toward a progressive platform that favors regulation and questions large companies, the 2020 election could help determine if M&A activity truly picks up or is short-lived.
“With presidential debates right around the corner and the Iowa Caucuses less than a year away, there is only a brief amount of time left before the headlines become dominated by populist political themes,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
Yet Boltansky and other analysts said the BB&T-SunTrust deal could trigger less political criticism than if the merger involved one of the largest, more globally active banks in the country.
“I think the policy perception is slightly different in this instance as this is two regional banks merging, at least in part, so the combined entity can better compete with the money-center banks,” Boltansky said. “There’s a better shot of some on the left being agnostic to it versus if we saw a money-center bank buying a $50 billion bank.”
In a research note Thursday, Jaret Seiberg of Cowen Washington Research Group said expects the “deal will trigger some political criticism on Capitol Hill” but “we don't see the transaction getting the same treatment as hearings involving Wells Fargo or other mega banks.”
But Seiberg added that Waters' control of the House Financial Services Committee means "there is more political risk now than if this deal were unveiled a year ago when the GOP still controlled the House.”
Bankshot is American Banker's column for real-time analysis.