OK, here we go.
The first big bank merger (or acquisition) since 2008 was announced today. It is significant for several reasons.
Banks Are Back?
As the financial industry imploded in 2008, it took the banks with them. It also exposed a lot of their shadier practices and brought out new regulations and reporting requirements. As a result, banks were in no way ready for the kind of scrutiny markets, investors, and regulators would perform if they tried to merge or acquire one another.
Today, two semi-major banks are merging to become one of the big boys. BB&T and SunTrust are merging. They are going to pick a new name, though they apparently don’t know what it is. Wall Street seems to approve of the deal.
Bigger Banks Better?
One of the reasons given for the merger is that being a bigger bank is better. The idea is that some of the costs associated with being a modern bank make being smaller less viable. That isn’t entirely true. A small bank, serving one, or a few, states is still a completely profitable and worthwhile venture.
Where banks are getting stuck is that area between small, and big. There, it can be hard, because you have to compete against bigger banks with more resources, without any of the advantages of being a smaller bank.
More Bank Mergers
Going forward expect to see more mergers and acquisitions of banks at this level. Mid-tier banking is a hard sector, and it’s getting harder.
Don’t necessarily expect much more of this “merger of equals” type activity, however. With the seal broken, expect big, mega banks to do most of the buying of smaller, mid-tier banks.
This leaves room for ambitious, smaller banks to grow into the mid-tier space, and the cycle repeats.