Pittsburgh’s FNB (NYSE: FNB) and Raleigh’s Yadkin Financial (NYSE: YDKN) have secured approval from the US Federal Reserve for their $1.4 billion all-stock merger. As a result, FNB will control nearly $30 billion in total assets to “become the 62nd largest insured depository organization” in the US. It’s just the kind of deal that’s become far more frequent recently. The Dodd-Frank Wall Street Reform and Consumer Protection Act has, perhaps paradoxically, encouraged smaller regional banks to grow through M&A in part to defray precisely those compliance costs created by the law’s requirements for increased regulatory scrutiny.

Completed corporate M&A among banks since 2010

Banking M&A

Bank stocks have been booming since the election on the expectation that President Trump will succeed with his plans to roll back or at least ease enforcement of the Dodd-Frank Act, which passed in 2010 as the culmination of the banking reforms crafted in the wake of the financial crisis. In addition, lawmakers have already passed legislation to raise the threshold at which greater regulatory scrutiny kicks in from $50 billion AUM to $125 billion, effectively shifting the ceiling on dealmaking up so that banks wouldn’t be reluctant to consolidate by an increased combined AUM. But dealmaking in this space might not need much encouragement.

Announced corporate M&A among banks over past six quarters

Banking M&A

Banking M&A

The Dodd-Frank regime has succeeded in preventing the biggest banks from getting bigger by getting together. But it has also encouraged heavier regional consolidation in recent years. Under a more relaxed framework, smaller banks could spend less on compliance and more on acquisitions. This would effectively shift the motivation behind banking M&A, but the results would stay the same.
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Article by Adam Putz, PitchBook