John Thain is leading the way for U.S. regional bank M&A. The boss of CIT – and the former chief executive of both Merrill Lynch and the NYSE – on Tuesday secured regulatory approval to buy OneWest for $3.4 billion. The deal is the first since the financial crisis struck to transform a run-of-the-mill financial institution into a systemically important one. That should clear the way for more deals.
Most banks have been fearful of regulatory opprobrium for any significant mergers since the financial crisis. The Federal Reserve only narrowly approved Capital One’s 2010 takeover of ING Direct and has been sitting on M&T’s proposed $3.7 billion acquisition of Hudson City Bancorp for nearly three years.
BB&T helped grease the gears for more deal activity earlier this year. The North Carolina-based lender, with $184 billion of assets, received approval for a couple of small purchases – Bank of Kentucky and its $2 billion balance sheet and 41 Texas branches from Citigroup – and the larger takeover of $19 billion Susquehanna Bancshares.
All three got the thumbs-up from Washington within eight months. The Susquehanna deal, in particular, already will have sent bank bosses scurrying back to their spreadsheets, as it allowed a relatively big lender to get bigger.
CIT should further embolden investment bankers and their clients. The magic number here is $50 billion. It’s the amount of assets that triggers a bank’s designation as a potential systemic risk. While it falls short of the more important $250 billion threshold – where mergers are all but barred – it also has become something of a psychological barrier for bank mergers amid an ultra-conservative, post-crisis regulatory atmosphere.
Thain has broken through, however, meaning peers probably will test the $50 billion boundary, too. With lenders facing low interest rates, so-so growth and fewer avenues for cost cutting, having the M&A option available again will be something of a blessing.