Concerns surrounding potential loan losses at United States banks have sparked speculation about a rise in merger and acquisition (M&A) activity. Industry sources suggest that larger, stronger banks may seek to acquire smaller or weaker rivals amid growing unease. This comes more than two years after the collapse of Silicon Valley Bank, an event that destabilised the sector. Recent auto company bankruptcies and problematic loans have negatively impacted bank stocks, raising concerns about future financial health.
Zions Bancorporation, which is a financial services company, recently disclosed losses tied to commercial and industrial loans. Western Alliance, a bank holding company, has initiated a lawsuit alleging fraud. These events further impacted banking shares. While the current situation differs from the 2023 regional banking crisis, concerns about credit quality are heightened due to the typically private nature of banks’ loan exposure information. Unlike securities mismatches, which are visible to shareholders, credit losses are aggregated and only disclosed if they surpass a certain threshold.
According to sources, potential buyers are exercising caution due to the increased risk associated with acquiring banks that may have underlying problems. However, prolonged weakness in smaller banks could prompt boards or shareholders to consider a sale to mid-sized lenders. Despite the volatility, the importance of scale in absorbing market and credit shocks supports the long-term prospect of bank deals. While most bank loans have performed better than expected, recent loan problems have raised fears of broader deterioration.
Stock price volatility typically hinders deal-making, making valuation agreements difficult. Early-stage M&A considerations may be paused until the market stabilises. However, Greg Hertrich from Nomura suggests that the recent selloff could revive strategic deal talks. Changes in the market’s view of enterprise values could potentially accelerate deal timelines.
