Cross-Border Shopping

Anyone who follows the US banking industry can tell you a wave of mergers is likely on the way because regulators under the Trump administration have signaled a friendlier stance on consolidation.

There are close to 4,400 banks in the US (yes, Canadians, you read that right) and many of the mid-size and smaller firms are struggling to cover the technology costs needed to keep a modern lender running.

Plus, compliance costs can balloon for small banks as they cross key regulatory thresholds like $100 billion or $250 billion in assets. Joining forces with another lender can help create an institution large enough to justify the new costs, my colleagues Yizhu Wang and Weihua Li reported last year.

A handful of large regional US banks are likely kicking tires, according to Bank of America analysts, who named M&T Bank and PNC Financial as potential buyers. Huntington and Fifth Third are digesting recently closed deals but could be on the hunt after that, the analysts said in a report this week.

Spain’s Banco Santander got into the consolidation race in a big way this week. The lender, which already has an auto finance business in the US, agreed to acquire Webster Financial in a $12 billion deal. It would be the largest-ever takeover of a US lender by a bank from continental Europe, according to data compiled by Bloomberg.

The natural question now is whether Canada’s big banks will go shopping south of the border once again. They’re flush with capital even after a recent share buyback binge.

Investment bankers are no doubt drawing up slide decks with ideas on how they could put some of that capital to work.

Some push factors make the opportunity attractive, said Geoff Rush, global head of banking and capital markets at KPMG in Toronto. The valuations of many target banks in the US look appealing and mergers are getting approved a lot faster than under the Biden administration.

That window won’t stay open forever though, Rush told me, pointing to the US midterm elections in November, which have the potential to shift control of Congress. “The possibility still exists that if a major Canadian bank sees an opportunity to execute a bank acquisition at a very attractive price, now may be the time to act.”

Economic and geopolitical tensions between Canada and the US may complicate the matter, Rush said, noting that a lot will hinge on the coming review of the USMCA trade agreement. (Remember how President Donald Trump complained that it’s too hard for US banks to enter the Canadian market?)

Each bank CEO has a lot to consider.

Bank of Montreal is still working through its $16 billion acquisition of San Francisco-based Bank of the West, which closed three years ago. Now it’s both pruning and growing. Last year it agreed to sell 138 branches in 11 states and is planning to expand organically by opening 150 others, with a focus on California. That doesn’t exactly scream “shopping for another big deal” to me.

Over at Royal Bank of Canada, the turnaround of Los Angeles-based City National Bank, which needed a balance-sheet bailout in 2023, is progressing well but still underway. Chief Executive Officer Dave McKay told me he’s interested in striking deals for wealth and advisory firms in the US — but only at the right price.

You can pretty much count Toronto-Dominion Bank out of any significant dealmaking in retail banking. It’s operating under an asset cap following its settlement with US authorities over anti-money laundering failures — the problem that scuttled its $13.4 billion deal to buy First Horizon.

Canadian Imperial Bank of Commerce bought Chicago’s PrivateBancorp in 2017. But its focus in the US has been on wealth management and commercial lending, rather than a broad-based retail strategy. Perhaps that could change under new CEO Harry Culham, but it would be a significant pivot.

With Scott Thomson as CEO, Bank of Nova Scotia has begun redirecting capital away from Latin America, and the US is a prime target for increased investment. The firm’s 2024 deal to acquire a minority stake in Cleveland-based KeyCorp left some scratching their heads, wondering if Scotia’s strategy would eventually lead to a more active role in the US retail banking market. Is now the moment?

“It’s such a big market and the economy continues to do well in the US,” Rush said. Still, in his view, acquisitions of fintech and advisory firms are most likely.

“My expectation would be smaller-size deals, rather than saying, ‘We’re going to do a massive takeover of a mid-size US bank.’”

That won’t stop the investment bankers from knocking on executives’ doors with their best pitches.