U.S. bank executives are expecting merger and acquisition activity to ramp up over the next 18 months, according to a new survey from New York City-based investment bank Keefe, Bruyette & Woods (KBW).
The survey of 137 regional bank CEOs, CFOs and directors finds that 64% expect increased mergers and acquisitions (M&A) activity over the next 18 months, driven mostly by smaller transactions.
The top reasons bankers cite for accelerated M&A activity include the pressure on deposits as interest rates rise, the narrowing of bid/ask spreads in M&A negotiations, and political and economic uncertainty.
The top obstacles to M&A include potential corporate tax reform, smaller banks expecting higher buyout prices, and increasing profitability in the banking sector that could allow more companies to remain independent.
The survey also notes that 60% of executives say that the election of U.S. President Donald Trump had no impact on their M&A expectations, but that 31% said the election results make them more likely to be buyers. Since the election, mid- and large-cap banks have seen their stock prices rise faster than the stocks of smaller banks, the survey says.
"The gap in gains between large regionals and their smaller counterparts permit large regionals to pay higher take-out prices while still committing to the tangible book value earn-back they promise to investors," says Michael Perito, director at KBW, in a statement.
The survey also found that 44% of bank executives expect two additional rate hikes in in 2017, whereas 26% expect zero additional hikes this year.
"While there are items such as political and regulatory uncertainty that could temper enthusiasm, the results of this survey point to a continued high pace of consolidation. As a result, a handful of regional banks are best suited to take advantage of this opportunity," adds Perito.