U.S. Banking Industry Consolidation to Continue According to Fitch Ratings

by Mercator Advisory Group 0

Over the past two recession-wracked years, mergers and acquisition have, for the most part, been shot gun weddings where the strong takes over the weak with the FDIC acting as the marriage broker and holding onto the most toxic of the assets. In the fourth quarter of 2010, we saw a few significant transactions such as Bank of Montreal (through their Chicago-based Harris Bank subsidiary) acquiring Marshal and Isley in nearby Milwaukee. Fitch Ratings believes these mergers foreshadow a new series of bank acquisitions starting in 2011 as the banks with strong balance sheets acquire banks which were weakened over the past two years.

In a new report, the rating agency says that acquisitions have become a viable option for management teams of stronger banks to quickly expand their franchises, grow their balance sheets, deploy capital, and increase earnings via cost savings and economies of scale, in an effort to push returns closer to long-run historical levels at a time when growth opportunities are limited and the regulatory outlook is uncertain. Many weaker banks may also find themselves open to being acquired or an attractive target for an acquirer.

The rating agency indicates that it expects the increased M&A activity to lead to a concentration of a few large money-center banks and a larger number of “super-regional” banks that dominate specific geographies across the country. Fitch also believes that the growing concentration of market share implies that many community banks may struggle to grow and remain profitable in the short term.

For additional information read the article in Investment Executive: