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Are US banks regaining their appetite for acquisitions?
[NEW YORK] News that JPMorgan Chase considered bidding for British payment company Worldpay signals that big US banks could be shifting back into acquisition mode after nearly a decade playing defence.
JPMorgan, the biggest US bank by assets, said Wednesday that while it considered bidding on Worldpay, it would not attempt what would have been its biggest purchase since the financial crisis.
JPMorgan's decision to back off opened the way for the acquisition of Worldpay announced Wednesday by US payment firm Vantiv. But the once over of Worldpay by JPMorgan is another sign of a shift from the tough regulatory environment in the aftermath of the 2008 crisis.
"I think the time for the big banks to break up is over," said Richard Bove, an analyst at Rafferty Capital Markets.
"This wasn't possible a few months ago," said Gregori Volokhine, president of Meeschaert Capital Markets.
The maneuverings around Worldpay came just days after the US Federal Reserve gave the green light to large US banks for a generous round of capital distributions to shareholders after the industry passed stress tests with flying colors.
Banks amassed some US$750 billion in capital to meet rules enacted while Barack Obama was president, according to Morningstar.
With President Donald Trump signalling a softer regulatory approach, some analysts expect banks to employ some of that cash on acquisitions of rivals or of technology companies and not only on returning money to shareholders.
"Banks have to take some risks because there is not enough organic growth in their traditional business lines," said Mr Volokhine, who expects large international banks to be active in mergers and acquisitions.
Mr Bove said the list of banks that could be primed for deal-making includes Bank of America, US Bancorp, PNC and Goldman Sachs.
"The whole game is that you have to get more customers, and to get more customers, you have to make more acquisitions," Mr Bove said.
Tech a potential target
A recent Treasury Department report said 171 of 370 rules implemented under the Dodd-Frank banking law enacted after the crisis could be modified.
Mr Trump has staffed his administration with top officials sympathetic to big finance, including Treasury Secretary Steve Mnuchin and National Economic Council director Gary Cohn, both of whom once worked at Goldman Sachs.
Other key players in the Trump administration with banking industry experience include Joseph Otting, nominated to be head of the Office of the Comptroller of the Currency, and Randal Quarles, who is reportedly in line for a top regulatory post at the Federal Reserve.
"You have a total change in the structure, in the thinking and the policy of regulators towards banks, which would suggest that big banks are going to be allowed to make acquisitions again," Mr Bove said.
One possible area of interest could be players like Worldpay active in financial technology as consumers turn to their smartphones more frequently to buy goods and make transactions.
Big banks have not been major players in the world of virtual currencies or in the innovation of electronic payments, a sphere dominated by companies like PayPal, Apple Pay and Square.
"The banks need to think about the future and not just paying out dividends," said Mr Volokhine.
"Otherwise, they'll become has-beens."