M&A

Indirect effects of tariff volatility and economic uncertainty are having a chilling effect on some bank merger-and-acquisition activity, even as lenders receive signs of a less burdensome regulatory environment for M&A.

“We’re stalled in the starting blocks based primarily on lack of clarity as the Trump administration pursues its policies,” said Patrick Hanchey, a Dallas-based partner at law firm Alston & Bird.

That domestic policy uncertainty seems to hurt publicly traded bank stocks more than the general market, Hanchey noted.

Given stock reactions to President Donald Trump’s November reelection, expectations around interest rate cuts and a more business-friendly environment spurring regulatory easing, the industry entered the new year “really thinking it was going to be nirvana,” said Peter Winter, a D.A. Davidson analyst covering regional banks. 

There’s been plenty of consolidation pressure, particularly for smaller banks, the past several years, and it felt like Trump’s win “was going to be sort of the powder keg,” said Christopher Olsen, managing partner and co-founder of investment-banking firm Olsen Palmer. 

Lack of predictability regarding Trump’s trade war and taxes on imports, however, has disrupted that to some extent, analysts said. 

Banks aren’t directly affected by tariffs and the surrounding volatility, but “there’s an indirect link, in that that has absolutely cooled bank stocks … over the last month or two,” Olsen said. The first three months of the year dealt U.S. bank stocks their worst quarterly loss since the spring 2023 regional banking crisis, with Keefe, Bruyette & Woods’ bank index falling 3.9%, Bloomberg reported in March. 

Higher bank stock valuations “helps grease the skids of dealmaking,” Olsen noted. When the buyer’s currency in a stock transaction no longer goes as far, it can lead to a bid-ask spread.

That’s creating roadblocks for some would-be acquisitions, Olsen said. 

“What’s happening for some deals is they can’t agree on terms, if only because of valuations,” he said. Olsen Palmer works with banks nationwide with assets between $10 million and just under $10 billion.  

He pointed to one all-stock transaction where deal terms were agreed to in December. But due to market volatility, the stock price of the buyer has declined, so the deal has been paused while the parties await a calmer environment and a stock price recovery.

“I imagine there are absolutely other transactions … already in process that are just like that,” Olsen said.

‘He could change his mind’

On the regulatory side, analysts and attorneys noted the timeliness of approvals seems more promising since Trump has returned to the White House. Hastening the bank merger approval process is something Travis Hill, acting chair of the Federal Deposit Insurance Corp., has labeled a priority. 

Evansville, Indiana-based Old National said in March it received Federal Reserve and FDIC approval for its bid to acquire Minnesota-based Bremer Bank, a deal announced in late November. And Tupelo, Mississippi-based Cadence Bank received necessary regulatory approvals for its acquisition of FCB Financial Corp. just two months after announcing the transaction. 

The Fed in March approved acquisitions by Mississippi’s Renasant Bank and Jacksonville, Florida-based EverBank. One mega-deal, however – Capital One’s pending $35.3 billion acquisition of Discover – is still waiting on regulatory approvals, more than a year later. 

A faster approval process through regulatory easing is one expectation fueling a potential increase in M&A activity this year – predicted mainly for banks under $50 billion in assets.

“It seems to me that there are plenty of buyers and sellers, but the question is whether and when these institutions acknowledge that they are a buyer or a seller, even in the face of economic uncertainty,” said Joe Silvia, a Chicago-based partner at law firm Duane Morris.

If economic uncertainty persists, Winter is concerned pipelines may weaken. He noted one $30 billion-asset bank – eager to acquire another lender – said that in January, M&A conversations had notably picked up. More recently, however, the bank said conversations have stalled.  

Stocks rallied March 24 on reports that the Trump administration had whittled tariff plans, but the market remained on edge in the lead-up to Trump’s planned tariff announcement April 2, when he intended to reveal the details of his “reciprocal” duties on some of the U.S.’s trade partners. 

Given the on-again, off-again approach thus far, “he could change his mind,” Winter said. “The worry is, the longer this goes on, it’s going to create more issues.”

The impact to M&A may be felt more acutely at the larger regional or super-regional bank level, since many of those lenders may need to see their stock value and price rise before pursuing a deal that involves stock issuance or a stock swap, said Jacob Thompson, Dallas-based managing director of investment banking at Samco Capital. Smaller community bank deals, on the other hand, are typically cash transactions, or cash and some privately held stock.

Thompson said he’s working on a handful of transactions, advising buyers and sellers in the community bank space. So far, none of the participants have indicated they need to push pause, he said.

“In the smaller community bank space, I think you’re going to still see transactions happen,” Thompson said, because those lenders face persistent issues such as management and board succession concerns, investments in technology and infrastructure to remain competitive, and compliance burdens.

Banks’ deposit growth, net interest margin and net interest income remain strong, Hanchey said, “so there is reason to believe that stocks will rebound and support acquisitions once we have more domestic policy clarity.”

Still, if the Trump administration moves ahead with planned tariffs, and those slow the economy – which could take months or quarters to play out – Olsen, for one, will be watching the effect on credit quality at banks. 

If tariffs lead to a recession, and a recession causes credit losses, “that will stall M&A like nothing else,” he said.

The potential formation of the largest U.S. credit card issuer has taken a significant step forward, and consumer advocates are renewing their concerns about how credit card borrowers with weak credit scores will fare under an enlarged Capital One.

The Justice Department will allow the $35.3 billion sale of Discover to Capital One to proceed uncontested, according to media reports. The Justice Department’s new antitrust leader, Gail Slater, determined there isn’t sufficient evidence to challenge the acquisition in court, The New York Times and Bloomberg reported in April, citing people familiar with the decision.

The DOJ clearance “is a disappointing display of Trump's supposed anti-monopolists failing to defend consumers from an anti-competitive transaction in an already consolidated industry,” Andrea Beaty, assistant director of the Revolving Door Project, a Washington-based advocacy group, said in an email.

“In this case, Capital One’s acquisition of Discover stands to reduce options for consumers in the credit card industry and weaken the overall financial system in the event of an economic downturn.”

The DOJ assent is “a little surprising and concerning” given earlier media reports that Justice Department antitrust staff had raised questions about the deal, said Jesse Van Tol, CEO of the National Community Reinvestment Coalition, which has urged regulators to block Discover’s sale.

“It certainly looks like this was a political decision more than a substantive one made by career staff,” Van Tol said in an interview. “The most disappointing thing about the Department of Justice is just how narrow the antitrust tools have become.”

Biggest in cards

The department announced a task force last month to target anticompetitive regulations. The DOJ Antitrust Division “will stand against harmful barriers to competition whether imposed by public regulators or private monopolists,” Slater said in a press release.

A spokesman for Capital One said in an email that the deal “complies with the Bank Merger Act’s legal requirements and we remain well-positioned to gain approval.”

The DOJ and Discover declined to comment, as did the office of New York Attorney General Letitia James, who last year began an investigation of the proposed merger to assess whether it infringes on the state’s antitrust law. 

Under the combination, Capital One would become the largest U.S. credit card issuer, with a credit card loan portfolio of about $250 billion, according to a February 2024 investor presentation. It would also gain control of Discover’s card payment network, a distant also-ran to rivals Visa, Mastercard and American Express.

Critics of the acquisition contend that consumers with low credit scores, generally below 670, will become even more vulnerable to higher costs as Capital One expands its share of the subprime card market. They also have told regulators that Capital One could increase fees for debit card use via its control of Discover’s network. Discover, like American Express, is considered a closed-loop system as they both issue cards and operate payment rails. 

Capital One’s bid for Discover “poses a test case” for how the Trump administration will review proposed mergers and apply antitrust law, Adam Rust, director of financial services for the Consumer Federation of America, said in an email.

“Capital One will gain the benefits that come with owning a card network and see returns from scale. But will the public benefit as well?” Rust wrote. “Consumers with subprime credit will have fewer choices and may pay higher interest rates on balances. Merchants will pay higher interchange on debit transactions. What is being done to ensure the public benefits as well?”

The Capital One spokesperson responded by noting comments in April 2024 by CEO Richard Fairbank about the deal. “We believe strongly that this merger will increase competition among banks and credit card issuers and payment networks, and provide significant benefits for consumers, merchants and the communities that we serve,” Fairbank said during a quarterly earnings call with analysts.

The card market is also less concentrated than a decade prior, Fairbank said, noting more than 4,000 issuers.

Remaining reviews

The Justice Department’s advisory review, which has not been released publicly, was sent to regulators with the Office of the Comptroller of the Currency and the Federal Reserve Board of Governors, the Times and Bloomberg reported. Both of those agencies are still reviewing the deal. In December, the Delaware State Bank Commissioner approved the transaction.

The Fed declined to comment, and a spokesperson for the OCC did not respond to a message seeking comment.

Capital One, based in McLean, Virginia, is already the largest card lender to subprime borrowers, and Discover would add roughly $20 billion to its subprime portfolio, according to a July 2024 letter to the OCC and Fed, written by the NCRC and cosigned by about 100 consumer advocacy groups.

With the portfolio of suburban Chicago-based Discover, Capital One would control roughly 31% of the subprime credit card market, according to the NCRC, which based its review on public filings by the 30 largest credit card lenders. Consumers with subprime scores are less able to migrate their business to other card lenders, thus reducing competition in that market, the groups said. 

“This raises significant concerns about how this merger would reduce options for financially vulnerable customers and reduce the already limited competition on pricing for non-prime credit cards,” the groups wrote.

In 2023, subprime borrowers with scores below 660 accounted for nearly one-third of Capital One’s card portfolio, and 20% for Discover, according to the groups’ research. 

Democrats in Congress have also decried Discover’s sale to Capital One, calling the latter a bank with a history of regulatory infractions. Sen. Elizabeth Warren, D-MA, and Rep. Alexandria Ocasio-Cortez, D-NY, wrote to regulators to urge them to consider Capital One’s M&A history, including its 2011 acquisition of ING Direct.

Another hurdle for Capital One and Discover may be the role of state attorneys general, who also could seek to block the deal if it’s uncontested at the federal level, Van Tol said. 

“The question is whether they’ll put together a case and an argument that is compelling,” he said. “They do have to navigate around federal preemption issues.”

HomeStreet has found a landing spot.

The bank will merge into Walnut Creek, California-based Mechanics Bank in a transaction that values the Seattle-based lender at around $300 million.

The deal, expected to close in the third quarter, would expand Mechanics into Washington, Oregon and Hawaii, and create a $23 billion-asset bank that adds 56 branches to the California lender’s 112-location footprint.

“We are excited through this transaction to extend our market presence with a full West Coast footprint from San Diego to Seattle,” Carl Webb, the chair of Mechanics’ board, said in a statement in March. “This strategic merger also provides us with the opportunity to become a publicly traded bank holding company, which better positions Mechanics Bank for future opportunities.”

The transaction gives HomeStreet a partner, four months after the Seattle lender and its previous would-be acquirer, Denver-based FirstSun Capital Bancorp, terminated their proposed combination.

That deal, initially announced in January 2024, saw several tweaks, including an attempt by FirstSun to switch to a Texas state charter rather than a national one – perhaps to avoid needing sign-off by the Office of the Comptroller of the Currency.

FirstSun’s CEO in April 2024 said “it became obvious” the deal would not gain “near-term approval” because of the concentration of commercial real estate and multifamily loans.

Then, roughly three weeks before the deal collapsed, the banks said they were “discussing the pursuit of an alternative regulatory structure” after FirstSun said talks with the Federal Reserve and a Texas agency indicated the tie-up may not get a green light.

Since the termination, HomeStreet has offloaded some of its holdings in those segments, selling $990 million in multifamily loans to Bank of America.

Bank executives, on a call March 31, said HomeStreet’s CRE concentration is still roughly 575% of its capital, while Mechanics’ stood at about 289%. The CRE concentration for the combined company would be around 390%.

“We have discussed our plans to reduce that concentration over time,” Webb said, adding that work would be done to get that figure closer to 300%, a key benchmark regulators have cited as warranting attention if exceeded.

HomeStreet’s mortgage lending cratered after the Fed began increasing interest rates in 2022. The bank saw more than $3.3 billion in origination volume that year, but the figure crashed to $747 million in 2023, according to Home Mortgage Disclosure Act data. HomeStreet saw a $144.3 million loss over 2024, the bank reported in January.

“This merger validates the intrinsic value of HomeStreet’s loyal customer base, strong management and dynamic markets in which we operate and allows our shareholders to participate in the benefits of the combination going forward,” HomeStreet CEO Mark Mason said.

HomeStreet shareholders are expected to own roughly 8.3% of the combined company once the transaction closes. The other 91.7% will be owned by legacy Mechanics shareholders, including about 74.3% by the Ford Financial Fund and its affiliates, Mechanics said.

The Mechanics deal values HomeStreet slightly higher than the $286 million FirstSun transaction would have. HomeStreet may not have gotten everything it wanted, though. The Seattle bank chose FirstSun as a potential partner in January 2024 in part because it offered Mason a full-time position for two years after the deal’s closing. Two other potential deals HomeStreet was weighing at the time would have put him in advisory or consulting roles, Chuck Griege, chief investment officer at Blue Lion Capital, told S&P Global.

As part of the Mechanics deal, Mason will remain with the combined company in a consulting capacity. One member of the HomeStreet board, yet to be named, will become a director for the combined company. Otherwise, Mechanics’ board will be unchanged. Mechanics’ officers will continue as officers in the combined company, according to Monday’s release.

C.J. Johnson, Mechanics’ CEO, said the bank found the HomeStreet deal “strategically and financially compelling for shareholders of both [organizations],” adding, “We have completed a thorough due diligence process and look forward to welcoming HomeStreet’s clients and employees to our company.” 

Mason said the combined company “will have a strong branch footprint and deposit market share in the best markets in the west, strong core deposit funding, a well-diversified, conservatively underwritten loan portfolio and a growing wealth management and trust business.”

“Both organizations share very similar banking strategies, strong credit cultures and a deep commitment to our customers, community service and being good corporate citizens,” he said.

Hope Bancorp has completed its merger with Honolulu-based Territorial Bancorp, the acquirer announced in April.

Hope received the regulatory nod a month earlier – nearly a year after the Los Angeles-based lender announced its intention to buy Territorial for $78.6 million in stock.

Territorial Savings Bank will operate as Territorial Savings, a unit of Bank of Hope, the company said.

“We are excited to have completed this combination and to officially welcome Territorial customers and team members to the Bank of Hope family,” Kevin S. Kim, CEO of $17 billion-asset Hope Bancorp, said in a statement.

With the merger’s completion, Bank of Hope has become the largest regional bank catering to multicultural customers across the continental U.S. and Hawaii, Kim added.

Territorial shareholders will receive 0.8048 shares of Hope Bancorp common stock in exchange for each share of Territorial common stock they own, according to the press release.

The deal was expected to close by the end of 2024 but faced repeated challenges. Hope’s bid for Territorial was followed by an offer from Blue Hill Advisors last August. The investor group swooped in with a $12-per-share cash offer and later bumped it up to $12.50 per share – compared with the $8.82-per-share, all-stock offer from Hope.

Territorial CEO Allan S. Kitagawa defended the Hawaii bank’s choice in a September statement.

“In comparison to the Hope merger, where we have an experienced acquiror and a fully negotiated merger agreement, and where all required regulatory applications have been made and are being processed, and no third-party financing is required, the Blue Hill proposal is highly speculative,” Kitagawa said.

Blue Hill outlined in a presentation that its offer was backed by more than $3 billion in combined assets under management and capital support exceeding the required investment of more than $100 million.

Blue Hill also noted that in addition to a significantly higher value, the proposal provided an option for up to 30% of Territorial shareholders to continue to invest in the recovery of the bank and a commitment to preserving it as a local lender.

Territorial, though, asserted that while Blue Hill relied on anonymous investors, Hope signed a merger agreement with Territorial and had already invested money in the approval process. 

Additionally, Territorial said, Blue Hill could not provide evidence to support that investors could secure regulatory approval quickly if needed. Further, due diligence had already been completed for the Hope deal with few conditions that remain to be reviewed, Territorial said.

Jason Blumberg, managing member of Blue Hill, accused Territorial of trying to strong-arm its investors and asserted that Hope’s last attempt to acquire a bank in 2017 failed to secure regulatory approvals.

“Territorial is playing ‘chicken’ with shareholders: Approve the Hope deal or else.” Blumberg wrote in October, calling the Hope deal “one of the worst we’ve ever seen.”

In all, Territorial rejected Blue Hill’s advances three times, and postponed a shareholder vote by nearly a month to continue discussions with investors and urge them to back the acquisition by Hope.

The Hawaii bank’s shareholders ultimately reiterated their commitment to Hope’s offer.

“We expect our combination with Bank of Hope to strengthen Territorial for the long term, providing many advantages for our customers and employees as we become part of a larger organization with greater resources, enhanced technology platforms, and an expanded array of banking products and services,” Kitagawa said in a November statement.

The roughly $2.17 billion-asset Territorial, which has 28 branches throughout Honolulu, will expand Hope’s footprint and its reach, targeting Asian-American and Pacific Islander communities. 

Hope Bancorp focuses on the Korean-American market, with 46 branches in California, Washington, Texas, Illinois, New York, New Jersey, Alabama, and Georgia. 

In a note in March, analysts at Keefe, Bruyette & Woods said Territorial “add[s] low-cost, granular deposits, which remains a core strategy for Hope.”

Birmingham, Alabama-based Legacy Community Federal Credit Union has agreed to acquire First Community Bank of Cullman in an all-cash transaction, the credit union said.

The financial terms of the deal were not disclosed. The transaction, which is expected to close this year, will help Legacy expand beyond the greater Birmingham area into Cullman County, the credit union said.

Amid the deal, though, bank and credit union trade groups have intensified their verbal brinkmanship.

The Legacy deal is the third proposed acquisition of a bank by a credit union this year and, though that is far fewer than the record 22 credit union-whole bank deals announced in 2024, some of the reservations against such transactions still stand.

Trade groups such as the Independent Community Bankers of America have long argued the tax-exempt nature of credit unions allows them to offer a higher purchase price, putting acquisitive banks at a disadvantage.

The ICBA introduced a resolution calling on lawmakers to end federal tax exemption for credit unions with $1 billion or more in assets or to establish a tax uniformity between credit unions and community banks that pay taxes.

“Eliminating the federal tax exemption for credit unions over $1 billion in assets will help ensure taxpayer dollars no longer tilt the competitive marketplace, subsidize community banking consolidation, and result in fewer choices for consumers and small businesses,” ICBA CEO Rebeca Romero Rainey said March 12.

Jim Nussle, CEO of the trade group America’s Credit Unions, blasted ICBA the following day, saying their targeting of just the largest credit unions “shows they know their message is weak with lawmakers and consumers alike.”

“This isn’t about the millions of Americans who will suffer without access to a credit union, this is about credit union competition chipping away at the banks’ own bottom lines,” Nussle said March 13. “For decades, banks have taken advantage of taxpayers for their own profit: they enjoy Subchapter S subsidies, make risky decisions that consequentially rip away people's American dreams, abandon communities, and get bailed out by the government when they overstep.”

Subchapter S corporation status, Nussle said, allows publicly traded banks to pass corporate income directly to shareholders for federal tax purposes. Banks, for their part, argue Subchapter S exists so income is not double-taxed — first on the corporation, and again on shareholders.

Whole bank-credit union deals are off pace from last year — at this point in 2024, six had been announced. However, Michael Bell, a partner at law firm Honigman, said such transactions “will be on the same pace as last year.”

Buying First Community Bank of Cullman will enable Legacy to offer a broader range of financial products and services to local residents and businesses, including enhanced digital banking options, competitive checking account choices and high-yield savings accounts, the company said. 

“Legacy has been committed to crafting financial solutions for the communities we serve for over seventy years,” Glenn Bryan, Legacy’s CEO, said in a statement. “Our culture emphasizes excellence, education, energy and empowerment, and we look forward to bringing our approach to financial service to the people of Cullman County.”

The $644 million-asset Legacy counts nine branches and serves about 39,000 members in central Alabama. It plans to open two more locations this year, the credit union said.

First Community, by comparison, had $104 million in assets, $81 million in loans, $79 million in deposits and $13 million in equity as of Dec. 31.

“After decades of service to the Cullman area, the decision was made by our Board of Directors to seek a partner that could take our service to the next level,” Billy Faulk, First Community’s CEO, said in a statement. “We were determined to find a group that held the same philosophy of business that we do, and after an extensive search, we found that in Legacy.” 

Among other credit union-bank transactions, California-based Frontwave Credit Union agreed in January to buy in-state Community Valley Bank for $56.4 million. Illinois’ NuMark Credit Union announced in March it would buy in-state lender The Lemont National Bank.

Scotiabank’s 14.9% stake in KeyBank for $2.8 billion has been a “hugely rejuvenating” boost of confidence for the regional lender’s bankers, KeyBank CFO Clark Khayat said.

“As much as you tell them to go play offense, this makes it a little bit easier, psychologically, I think,” Khayat told those attending a Barclays conference in September. The Canadian lender is purchasing about 163 million shares of KeyCorp’s common stock for $17.17 per share, the Cleveland-based bank said in August.   

Scotia made an initial investment of $800 million, giving it 4.9% ownership of Key’s common stock. That’s to be followed by an additional investment of $2 billion after customary closing conditions and approval by the Federal Reserve, the banks said.

Key, which has about $187 billion in assets, wasn’t looking for capital, Khayat said. 

“Scotiabank approached us. Others had, at some point in the past year or so,” he said, without naming the interested parties. 

Such a deal didn’t seem to make sense for KeyBank, Khayat added, so “we said thank you, but no thank you.”

But as Key CEO Chris Gorman and Scotia CEO Scott Thomson stayed in touch and the banks became familiar with each other, Key executives saw strategic alignment with the Canadian bank, Khayat said. 

The investment offers Scotia a U.S. footing, while Key sees the opportunity to return to peer-level earnings and returns sooner than later, and bolster its competitive position, Khayat said. Key will record a $700 million third-quarter loss on the sale of about $7 billion in low-yielding investment securities, the bank said in a filing.

The two banks are in the early stages of exploring potential partnership opportunities, but the different geographic markets they serve might offer a starting point. Key’s U.S.-based clients who do business in Canada and Mexico are “struggling” to get appropriate banking support, Khayat said. Scotia is a big player in those markets, as well as Europe, which makes for “potentially an easy hand-off” to a lender Key knows that can serve those clients while not presenting competition in the U.S., he added. 

Similarly, Scotia might have a large commercial real estate client in Canada who wants to start transacting in the U.S., opening a door for Key, Khayat said.

Going further, the two banks might consider, “are there certain products that we have that would suit their clients, or products that they have that would suit our clients, that we could basically white-label to each other?” Khayat said. 

Key has some sense of how to handle such scenarios through its work with fintechs, he added.

The 14.9% ownership stake, which gives Scotia two seats on Key’s board of directors, is a “threading of the needle,” from a regulatory standpoint, but “seems like the right balance,” Khayat said. 

Scotia’s initial 4.9% stake was strategic, since anything above 5% requires Fed approval. Canadian lender TD’s scrapped acquisition of Memphis, Tennessee-based First Horizon was “good grounds for us to at least test the theory that we needed to have more confidence before we went down this path,” Khayat said. That said, the bank wouldn’t have taken such steps unless executives felt “highly confident.”

When Barclays analyst Jason Goldberg asked Khayat about concerns that Key may have “anchored” itself to Scotia and left other banks less likely to able to acquire Key, Khayat said the lender is in a “clean spot,” as far as its ability to make the right decision for all Key shareholders, “not just 14.9% of them.”   

“If you walk down that path, and the right transaction were to come along for Key, then our board would do the right thing, and make the decision that makes the most sense to all of our shareholders,” he said. “That was a critically important point for us, and I think the ultimate agreement reflects that.”

As far as additional uses of the capital, Khayat said Key envisions being able to support clients as loan growth returns. And the bank is more likely to consider tuck-in type deals, such as “M&A boutiques, payments platforms, maybe some wealth-related shops – places that focus on the fee income streams we care about,” over whole-bank acquisitions, he indicated. 

Getting through the Scotia transaction, repositioning Key’s investment portfolio and catching up to peers when it comes to earnings will be plenty of work, and needs to come before an acquisition, he said.

“If the right transaction were to present itself, I think it’s our job to consider that,” Khayat said. But Key’s hurdles are going to be “pretty high, until we’re back into a place where we feel like we’ve fully done the self-help journey and we’re ready to integrate something else.”

Khayat also noted the bank’s expenses are likely to increase in 2025, largely because of inflation. The expense increase will be “supportable” given the revenue increase the bank expects, he asserted. Key has kept expense growth flat for the past few years, cutting a number of full-time employees in 2023 to do so, Khayat said. 

Ripple plans to buy prime brokerage firm Hidden Road for $1.25 billion, marking one of the biggest deals in the digital asset space in 2025.

With the acquisition set to close in the coming months, Ripple will become the first cryptocurrency firm to operate a global multi-asset prime broker, bridging the gap between traditional and decentralized finance.

“We are at an inflection point for the next phase of digital asset adoption – the US market is effectively open for the first time due to the regulatory overhang of the former [Securities and Exchange Commission] coming to an end, and the market is maturing to address the needs of traditional finance,” Ripple CEO Brad Garlinghouse said in April in a prepared statement.

Ripple and the SEC in March ended their yearslong battle over the crypto firm’s XRP token, which the agency alleged was an unregistered securities offering. A judge disagreed, giving Ripple and the SEC each a partial win. The SEC sought to appeal, then dropped the case.

Under Trump-era leadership, the SEC has dropped lawsuits against several crypto firms, and current commissioners have launched a crypto task force to encourage a regulatory environment that “protects investors … and supports innovation.”

“With these tailwinds, we are continuing to pursue opportunities to massively transform the space, leveraging our position and the strengths of XRP to accelerate our business and enhance our current solutions and technology,” Garlinghouse said.

Hidden Road clears $3 trillion annually and has more than 300 institutional customers. It also offers prime brokerage and financing across foreign exchange, digital assets, derivatives, swaps and fixed income.

The acquisition will bolster Ripple’s new stablecoin, RLUSD, as Hidden Road plans to leverage it as collateral throughout its prime brokerage products.

“With new resources, licenses, and added risk capital, this deal will unlock significant growth in Hidden Road’s business, allowing us to increase capacity to our customer base, expand into new products, and service more markets and asset classes,” said Hidden Road CEO Marc Asch in a prepared statement.

“Together with Ripple, we’re bringing the same level of trust and reliability that institutional clients are accustomed to in traditional markets — designed and optimized for a digital world,” Asch said.

Several high-dollar deals have occurred within the crypto realm in recent months, as regulators position themselves as more amenable to digital assets.

Stripe last October announced it would purchase Bridge, a platform aimed at making it easier to take payment via stablecoin, for $1.1 billion. Kraken, meanwhile, said in March that it would buy futures platform NinjaTrader for $1.5 billion.

President Donald Trump’s return to the White House is largely expected to spur a wide-scale easing of regulation. But how that takes shape in banking mergers and acquisitions remains to be seen.

The first big test concerns Capital One’s proposed $35.3 billion combination with Discover – by far the largest bank deal announced in 2024. 

State regulators in Delaware have signed off on the deal, but a green light from federal agencies has been more elusive. The Federal Reserve Bank of Richmond has peppered Capital One with multiple requests for information regarding the deal. 

The companies are doing what they can to make the deal palatable to regulators, announcing a five-year, $265 billion community benefits plan and selling off Discover’s private student-loan portfolio – historically a trouble spot for the lender.

If the Capital One-Discover deal is approved, a greater number of banks may feel comfortable pursuing bigger deals, analysts said.

Not that 2024 was a year of small deals. Six crossed the $1 billion mark: SouthState-Independent ($2 billion), UMB-Heartland (also $2 billion), Atlantic Union-Sandy Spring ($1.6 billion), Old National-Bremer ($1.4 billion), Renasant-The First Bank ($1.2 billion) and Berkshire-Brookline ($1.1 billion). 

Regulators, even before Trump took office, blessed several deals. The Fed gave a green light to the SouthState and UMB acquisitions in December and January, respectively. And the Federal Deposit Insurance Corp. signed off on WesBanco’s $959 million proposed purchase of Premier Financial Corp.

Across a spectrum of sizes, though, M&A activity among banks is expected to increase, analysts predict. 

Regional banks may be driven by growth objectives, technology acquisition or geographic expansion, some said. Community banks with less than $10 billion in assets will most likely see integration between similar-sized institutions or may pursue small deals but stay under regulatory thresholds. 

Regulatory easing?

Those thresholds are key. The specter of a once-seemingly imminent Basel III capital requirements upgrade has dissipated. But other groundwork – specifically, tiered regulation – remains.

“I think if some of the burden on the tiered regulation is eased – meaning $100 billion in assets is an artificial line that's been drawn – if that gets eased, or if there's less fear about growing over, you could see banks that are approaching $100 billion consider crossing,” Christopher McGratty, managing director and head of U.S. bank research at Keefe, Bruyette & Woods, said in an interview. “You could also see banks that are above $100 billion dipping down and acquiring banks of size, if the regulatory expectation isn't as severe.”

Peter Dugas, executive director at Capco, said he expects the Biden-era FDIC M&A guidance to be rescinded, along with a new approach from the Department of Justice on M&A approvals and the elimination of Basel III endgame capital requirements since it inhibits larger banks from pursuing M&A deals. These will be influenced, though, by who is nominated to lead the regulatory agencies, he said. 

But eased regulation, if it happens, won’t be a free-for-all.

“Even under a Trump administration … there's going to be an expectation that a bank would be able to effectively manage that growth,” Dugas said.

Executives at banks as large as PNC have served as skeptics.

“I think people are a little bit too excited … that they’re just going to let everybody run free here,” PNC CEO Bill Demchak said at a conference in December. “I don’t see that at all.” 

Deal volume, timelines and de novos

The three major bank failures of 2023 surely weighed on the M&A environment through the early part of 2024. Deal volume across financial services companies rose fairly consistently, though the value of deals may have wobbled from quarter to quarter, according to a study released by KPMG. On a year-over-year basis, deal value jumped 55.7% in the first three quarters of 2024, compared with that period a year earlier, KPMG found. 

Perhaps even more watched is the timeline for regulatory approval of M&A. During the Biden administration, deals took about nine months to close — 40% longer than in Trump’s first term, McGratty said.

FDIC Acting Chair Travis Hill listed, among his priorities, ensuring that mergers are approved in a “timely way.” 

Hill also prioritized encouraging more de novo activity so the space has robust new entrants. Analysts said deregulation could ease the path for de novos, after several years with few newly minted banks.

Colin Walsh, CEO of Varo Bank, said he believes more de novo activity will benefit the industry and consumers. Varo’s banking license showed that new entrants could meet rigorous regulatory standards and bring innovation to the space, he said.

But Walsh emphasized the importance of a stringent application process.

“The charter application process should be rigorous — it ensures banks are built on solid foundations,” Walsh said in an email. “Our experience has proven that detailed preparation builds stronger institutions that can withstand various challenges such as a pandemic, inflation, the Silicon Valley Bank crisis, and other macro-economic scenarios.”

AI, crypto and outside capital

Walsh tagged 2025 as “the year of AI,” adding that he expects to see bank M&A that fills gaps in tech offerings. The focus, though, “should be on deals that also enhance customer value while maintaining strong risk management practices,” he said.

Artificial intelligence is like a “baseline” that banks will implement for back-end operations, customer-facing tools like chatbots and digital banking services, said James Stevens, a partner at Troutman Pepper Locke.

Technology is becoming increasingly important in determining whether a bank becomes an acquirer or acquisition target, Stevens said. Tech-advanced banks are better positioned to acquire less tech-savvy institutions, while banks with limited tech capacity – usually smaller institutions with limited budgets – will more likely merge into tech-providing partners, he said.

Dugas viewed the lack of a clear regulatory framework with respect to cryptocurrency as a major reason for banks’ caution when engaging with the sector. That may change with the Securities and Exchange Commission’s launch of a crypto task force in January.  

Key changes in deal structure, such as when banks raise outside capital as part of a transaction, have assuaged investors, with buyer bank stocks performing better over the past six to nine months, McGratty said. 

“The deal stocks are acting better, at least in the mid-cap M&A,” McGratty said. “Now, if that can translate to larger banks having decent stock performance, I think that will encourage more banks to get off the sidelines and do deals.”

Fintechs, risks

Robert Tammero, a partner at K&L Gates, said he thinks that smaller banks need to consider partnering or acquiring fintechs to remain strong and viable in the financial field. Since fintechs can benefit from stable, low-cost funding from banks, the partnership trend has shifted from competition to collaboration, he said.

“I think that you are likely to see more banks considering buying fintech companies and fintech companies buying banks,” Tammero said. “These relationships are symbiotic and are important for the health of the banking industry going forward.” 

Dugas said merging banks must scrutinize funding and lending operations of acquisition targets and evaluate geopolitical exposure more than in the past. Further, potential tariffs on Canada, Mexico and other countries could impact M&A activity. 

One of the key drivers in bank M&A is commercial real estate portfolio health, Dugas said. Banks broadly are targeting acquisitions in states with stronger office occupancy rates such as Florida, Texas, and North and South Carolina, while avoiding those with struggling CRE markets such as New York, Illinois and California.