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April 29, 2015

Bank M&A heats up

The banking sector has been benefiting from strong mergers and acquisitions activity, as economic conditions continue to improve and financial institutions look toward consolidation as a means of cutting costs, meeting capital requirements and even diversifying their businesses. 

Weakness in bank shares
One major development helping fuel the strong M&A activity is low share prices, and Thomas Michaud, chief executive of broker and investment bank Keefe, Bruyette & Woods, pointed this out during a recent interview with American Banker. 

About a year ago, banking stocks were faring far better, and the KBW Regional Banking Index hit a modern-day high March 20, 2014, American Banker reported. This index, which illustrates the performance of publicly-traded regional banks or thrifts, rose to this level amid hopes that interest rates would push higher. 

US economic challenges
?The Federal Reserve has not yet increased its benchmark interest rates, holding back amid concerns about the U.S. economy. While there is evidence business conditions have been improving, the recovery has certainly stumbled on more than one occasion.

Over the last several months, market participants the world over have been scrutinizing figures pertaining to U.S. gross domestic product growth in the first quarter. Both government agencies and industry participants have provided concerning estimates for this rate of expansion. The latest figures from the U.S. Department of Commerce showed the world's largest economy grew at a rate of 0.2 percent

Amid this environment - where interest rates have stayed low and many are concerned they will not increase any time soon - banking stocks have had a hard time recovering to the levels they experienced last year as interest rates stay stubbornly low, according to American Banker.

Strong opportunities
While this situation is creating challenges for many banks, it might also present a wide range of industry participants with strong opportunities to take part in M&A. 

Financial institutions thinking about participating in this activity - particularly selling their enterprise - could benefit greatly from shoring up their loan portfolios before exploring a sale. Doing so could help these organizations address overconcentration or performance issues.

One good way to take an informed approach to such challenges is to work with Garnet Capital Advisors, a loan sale advisory firm with significant experience spanning many different types of debt.