ABA Banking Journal - March/April 2016 - (Page 46)

FEATURE > M&A WHY BANK CONSOLIDATION IN THE U.S. WILL LIFT OFF IN 2016 BY CHRISTOPHER D. WOLFE ith all the discussion surrounding the Federal Reserve's recent interest rate lift-off, consolidation in the banking sector is also set to accelerate. Listening to earnings calls and analyst presentations, you can feel the bank M&A in the air as management teams are increasingly stating their desire to pursue attractive opportunities. To underscore this point, a few large deals were announced towards the end of 2015: Key Corp's announced acquisition of First Niagara, and New York Community Bank's announced acquisition of Astoria Financial. These came on the heels of regulatory approval for M&T's long-delayed acquisition of Hudson City, signaling that bank M&A may start to take off. While there has been a long-term secular trend towards consolidation in the banking sector-with 4,810 fewer banks now than in 1994-looking ahead, consolidation will be driven anew by the confluence of higher fixed regulatory costs, the low-growth and resulting low-interest-rate environment and rapidly changing technological and financial innovation. Taken together, these forces have contributed to structurally lower profitability for the industry as a whole versus pre-crisis levels. Moreover, some banks will struggle to consistently earn their cost of capital. The U.S. is unique among large developed countries in terms of the sheer number of banks. By way of contrast, Canada gets by with just six major banks. Although in terms of assets, the U.S. banking industry is modestly concentrated, with approximately 50 percent of assets held by the 10 largest commercial banks, it remains highly fragmented with more than 5,410 commercial banks and 860 savings institutions as of late 2015. The fragmented nature of the industry reflects historical policy choices, such as the lack of interstate branching up to 1994. 46 ABA BANKING JOURNAL | MARCH/APRIL 2016 Many banks are now positioned to pursue long-sought STRATEGIC OPPORTUNITIES.

Table of Contents for the Digital Edition of ABA Banking Journal - March/April 2016

CHAIRMAN’S VIEW
UPFRONT
PICTURE THIS
LEGAL BRIEFS
LEARNING THROUGH LITERATURE
PUMPING IT UP
CRE AT A CROSSROADS
LAYING A FOUNDATION FOR INNOVATION
A PASSION FOR ADVOCACY
MARKETING
CEO ROUNDTABLE
WHY BANK CONSOLIDATION IN THE U.S. WILL LIFT OFF IN 2016
ABA COMPLIANCE CENTER INBOX
PAYMENTS
CYBERSECURITY
FRAUD
BOOKS FOR BANKERS
BOARD MATTERS
FROM THE STATES
CORPORATE SOCIAL RESPONSIBILITY
INDEX OF ADVERTISERS

ABA Banking Journal - March/April 2016