October 5, 2020

Bank M&A Picking Up - Time to Clean Up Balance Sheets

EXCERPT: Bank M&A activity is seeing an uptick, symbolizing optimism and change in the financial industry. Now may be a good time for lenders to clean up their loan portfolios with a debt sale before entering the market.

Mergers and acquisitions among banks are slowly increasing as fears of economic peril from the pandemic start to dissipate. 

The COVID-19 pandemic has impacted several aspects of the financial industry, but uncertainty is starting to ease as the economy continues to climb back. One positive impact of the easing of precariousness is an uptick in M&A activity among banks as confidence and optimism improve within financial institutions.

In fact, nine bank deals were announced in August, an increase from six in the two months prior.  Many of the announced deals are considered small and already had the wheels in motion before the coronavirus pandemic hit. Nonetheless, such deal activity among US banks is a positive note in an otherwise cloudy economic environment.

M&A's Expected to Increase Further Into 2020 and Beyond

The drivers for the increased M&A activity have been amplified by the health crisis, according to deal advisers, such as the requirement for scaling, spreading costs, and efficiency. As uncertainty surrounding asset quality continues to disperse, these drivers are more intensified amid the pandemic.

Even during these uncertain times, some of the risks of M&As can be offset by the efficiencies from cost savings. With tighter margins that have been made worse by the pandemic, banks are more inclined to place more emphasis on scaling and productivity.

The majority of the M&A deals are with banks that had started the process prior to the pandemic but had since put their plans on hold, only to resume activity again. That said, there are also new deals popping up, likely due to the easing of uncertainty.

While many M&A's had started pre-pandemic, many are beginning amid the health crisis.

While still a little uneasy, banks are slightly more confident compared to mid-March when the pandemic hit the nation hard. That said, the upcoming election is adding another layer of doubt that banks are dealing with. Further, investor behavior may be preventing some larger M&A players from taking part.

But some believe that M&A activity will continue to pick up toward the end of 2020 or into the early part of 2021 as a lot of the current uncertainty may clear, particularly after the election. In turn, more strategic transactions are anticipated moving forward.

Now May Be a Good Time For Banks to Change Up Their Loan Portfolios

Bank mergers and acquisitions symbolize change and optimism. As consolidation is likely to continue at a healthy rate, now may be an opportune time for sellers to clean up their balance sheets with a debt sale prior to getting into the market. Banks that sell off certain loans prove that there is liquidity in their special asset portfolio.

Garnet Capital can help facilitate the sale and acquisition of loan assets with qualified players in the market.

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