Judging by the last week, one could be forgiven for thinking that banking deals were back in vogue. Last Thursday, Capital One Financial announced that it was buying the American online banking business of the ING Group for $9 billion. Four days later, PNC Financial said that it would pay $3.45 billion for the Royal Bank of Canada’s retail banking network.
And on Wednesday, Regions Financial disclosed that it was exploring a potential sale of its Morgan Keegan brokerage firm.
But that spate of deal announcements doesn’t herald a coming surge in bank transactions anytime soon, according to merger specialists and analysts.
The pace of mergers is instead expected to remain slow as long as questions like the shape of financial regulation and the value of home mortgages hover over financial institutions.
“Until there are signs of a robust M. A. market, many sellers are going to choose to wait,” said Lee A. Meyerson, a partner at the law firm Simpson Thacher Bartlett and the head of the firm’s mergers and financial institutions practices.
Shortly after the financial crisis, many experts had forecast an upswing in deals as failing banks were matched up with rescuers and smaller institutions sought to gain much-needed scale.
Even now, banks face considerable pressure on their profitability. Fewer businesses are seeking loans, reducing the prices that banks can charge. The Dodd-Frank overhaul, which includes the so-called Durbin amendment that would cut debit card transaction fees, also threaten to cut into revenue.
Larger institutions, including SunTrust Banks and Regions, are also likely to face higher capital requirements that could constrain their lending.
Those factors make consolidation more attractive, as institutions look for ways to gain scale and squeeze out cost savings by combining back-office systems and cross-selling products.
While regulators have long been concerned about limiting the number of “too big to fail” institutions, some dealmakers say, the opposite problem of “too small to succeed” will continue to drive today’s bank mergers.
Yet the number of bank mergers in the country remains well below its peak in late 2008 and early 2009, with just 123 mergers announced this year through Wednesday, according to data from Thomson Reuters. By contrast, 277 deals were announced during the same time in 2009.
The number of bank transactions assisted by the Federal Deposit Insurance Corporation has slowed in recent months as well, as it has seized fewer failing institutions.
Few merger specialists expect the sort of transformative mergers that previously defined banking consolidation, like the union of Bank of America and NationsBank or even the fire sales of Wachovia and Washington Mutual.
“Near term, the days of blockbuster, mega-bank deals appear to be over,” said J. Kenneth McPhail, a managing director in Bank of America Merrill Lynch’s financial institutions group.
Many of the deals struck recently were asset sales, including the ING and R.B.C. transactions, rather than wholesale takeovers. ING said this week that it planned to continue selling other businesses, like its car lease unit, as part of the terms of its bailout by the Dutch government.
HSBC Holdings is also pursuing a sale of its 175 upstate New York branches.
And Citigroup has sold several assets as part of its revamping, including its student loan business. Its consumer finance unit, CitiFinancial, remains on the auction block.
Unlike in years past, the nation’s four-biggest banks are unlikely to pursue big acquisitions this year. Most of them are bumping up against a regulatory cap on owning more than 10 percent of the nation’s deposits.
That has left the next tier of institutions as among the most likely bidders for sizable deals that may arise. Other than PNC and Capital One, US Bancorp, which is well known for its merger appetite, and BBT and MT Bank as possible buyers. MT has already notched a sizable deal, agreeing to buy Wilmington Trust late last year for about $351 million.
In its latest weekly tally of potential bank deals, Keefe Bruyette Woods listed 22 institutions that could be sellers. The list included Marshall Ilsley, which agreed earlier this year to sell itself to Canada’s BMO Financial Group for $4.1 billion.
“There are a number of sellers who need to assess the new economic, regulatory, and competitive realities of the industry,” John Simmons, the co-head of JPMorgan Chase’s financial institutions group for North America, said.
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