As featured on the website Travilliannext.com on August 18, 2021
The market has cast a wary eye toward the stocks of most acquisitive banks. For several months now, we’ve noted that while we expected the pace of bank M&A to pick up meaningfully, the market’s receptiveness to it would likely be more tempered than what we’ve seen during the early recovery phase of prior cycles. Without rehashing all the details, our basic premise was that banks fared unusually well during the pandemic, helped by their own fundamental resiliency, a novel approach by the regulators to allow forbearance, and massive monetary and fiscal stimulus. As a result, the bank sector has emerged from the COVID pandemic in remarkably healthy condition, and thus, the start of this M&A wave has not been marked by sales of troubled banks at depressed pricing, as is typically the case coming off a recession. Rather, deal pricing has been more akin to what we tend to see toward the later stages of the M&A cycle, when most active acquirers underperform the broader bank index. Not surprisingly then, the market has thus far in this cycle viewed most active acquirers with a wary eye, and we suspect this isn’t likely to change for the foreseeable future.
