Consolidation in the US banking sector is likely to be stymied by high interest rates and regulatory pressures, according to Citizens Financial Group Inc. Chief Executive Officer Bruce Van Saun.
(Bloomberg) — Consolidation in the US banking sector is likely to be stymied by high interest rates and regulatory pressures, according to Citizens Financial Group Inc. Chief Executive Officer Bruce Van Saun.
“Right now you will not see a whole lot of acquisitions because, with rates as high as they are, the deal math does not work very well, and it is still opaque in Washington as to what their posture is,” Van Saun said in a Bloomberg Television interview Wednesday.
That uncertainty will keep deals muted over the next six to 12 months, with some transactions happening among smaller lenders, he said. If rates fall and there is a new regulatory regime, that could facilitate more takeovers in the years ahead, according to the CEO.
US regional banks are under increased scrutiny by regulators after the collapse of Silicon Valley Bank and First Republic Bank earlier this year. Some firms are shrinking their balance sheets to strengthen capital and improve liquidity as heightened interest rates and anticipated tightening of regulatory rules loom over the sector.
Read more: Regional Banks Shrink Balance Sheets as Stricter Rules Loom
At the same time, the Federal Reserve has issued a slew of private warnings to lenders with assets of $100 billion to $250 billion, including Citizens, Bloomberg News reported last week. Those notices have touched on everything from lenders’ capital and liquidity to their technology and compliance.
The changes and increased scrutiny by US regulators are “all manageable,” Van Saun said Wednesday. “It doesn’t affect how we’re running the bank. We have the strength and breadth of talent to apply what they are looking for,” he said of the tighter regulation.
Meanwhile, deposit flows at Citizens have stabilized and are expected to remain so, with the worst in the past, he said. The capital markets are also starting to open up, Van Saun said, with deals banks advise on picking up and boosting revenue in the months ahead.
–With assistance from Alix Steel and Guy Johnson.
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