News: Bank merger rethink

Tuesday, May 16, 2023

Bank merger rethink

May 16, 2023

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The Biden administration is starting to sound a little more accommodating when it comes to potential bank mergers. Here’s what you need to know before we hear lawmakers and regulators duke it out at this week’s four SVB-related hearings.

Treasury Secretary Janet Yellen said in a Reuters interview Friday that the current episode of banking turmoil “might be an environment in which we're going to see more mergers.”

“That's something I think the regulators will be open to, if it occurs,” she said.

Yellen’s comments are notable because one of President Joe Biden’s defining economic initiatives has been to ratchet up scrutiny of big corporate mergers. Canada’s Toronto-Dominion nixed its takeover of U.S. regional bank First Horizon just two weeks ago, saying it couldn’t provide a clear timetable for regulatory approvals. Progressive lawmakers have urged regulators and administration officials to take a hard line with big bank mergers in particular.

But it may become harder to reject more banking consolidation as the industry continues to reel from interest rate hikes and deposit runs. The TD-First Horizon deal went down, but the government also allowed JPMorgan Chase to buy First Republic to help stabilize the system earlier this month.

Wall Street dealmakers and bank lawyers will be looking for clues on what it all means when top bank regulators from the Fed, FDIC and OCC testify in the House tomorrow and in the Senate Thursday. Acting Comptroller of the Currency Michael Hsu will tell lawmakers this morning that recent banking instability presents an opportunity to shape “a more competitive, more community-oriented, and more resilient banking system.” But he’ll add that his agency is “committed to being open-minded" when considering merger proposals.

"The forces are all there for bank consolidation,” former Trump-era acting Comptroller of the Currency Keith Noreika, who leads U.S. banking work at Patomak Global Partners, told MM. “There are too many banks, and there are not a lot of other options to recapitalize those that are going to face tougher sailing with higher interest rates."

Watchdog groups are vowing to fight back, meaning the Biden administration and regulators will face some degree of resistance if they turn to consolidation to shore up the industry.

Americans for Financial Reform senior policy analyst Alexa Philo said “we should be talking about making the biggest banks a lot smaller.” Open Markets Institute executive director Barry Lynn said Yellen's comments “will not age well."

“The recent costly bank failures, bailouts and rescues prove [Secretary] Yellen is wrong,” Better Markets President and CEO Dennis Kelleher said. “The last thing this country needs is more bank mergers that create yet more too-big-to-fail banks that threaten the country’s financial stability and the economy.”

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Driving the day

Yellen speaks to the Independent Community Bankers of America’s Washington conference at 9 a.m. … Former SVB and Signature executives testify at Senate Banking at 10 a.m. … Bank regulators testify at House Financial Services at 10 a.m. … SEC Chair Gary Gensler speaks at FINRA’s annual conference at 10:30 a.m. … Rep. Maxine Waters hosts a deposit insurance roundtable at 2 p.m.

No X-date reprieve yet — Yellen said Monday that the U.S. will likely run out of cash to pay its bills as soon as June 1 if the debt-limit isn’t raised, reiterating the timing she gave May 1. She plans to give another update next week.

Yellen warned in a letter to lawmakers: “[W]e have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June.”

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Biden is expected to meet with congressional leaders today at 3 p.m. Here’s how the talks are shaking out.

Progressives fear a Biden betrayal — The next threat to a potential debt-limit deal is shaping up to be a brewing conflict between the president and the left wing of his party over whether Biden is giving away too much to Republicans.

Sen. Elizabeth Warren called budget caps a “self-inflicted wound." She said: “I’m very concerned about any efforts to just tangle aid recipients in red tape in the hope that they will be choked to death rather than get the help they need.”

The GOP has its own internal rift to resolve — Senate Republicans are signaling that House conservatives should show some flexibility if Speaker Kevin McCarthy is able to cut a deal designed to win over a majority in the lower chamber and a supermajority in the Senate.

“I give them a lot of credit for putting the ball in Biden’s court,” Sen. John Cornyn said. “But the next step is: Will they support the compromise?”

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In Congress

Ex-SVB chief says ‘sorry’ to lawmakers — Former Silicon Valley Bank CEO Greg Becker will tell the Senate Banking Committee this morning that he’s “truly sorry” for how the lender’s failure has impacted employees, clients and shareholders. He’ll testify with Signature Bank co-founder Scott Shay and former president Eric Howell.

— What you’ll hear from Senate Banking Chair Sherrod Brown: “Our committee is looking at ways to impose real accountability on those most to blame for big bank failures – the bankers themselves. … [I]t’s why we’ve brought the three of you here today, to answer for the mistakes you clearly made at these banks.”

— What ranking member Tim Scott wants to know: Scott will try to glean more info on how regulators supervised SVB and Signature, according to a spokesperson. He’ll also use the hearing to argue that any proposals to recoup and restrict executive compensation should be targeted at bad actors and not executives at well-managed banks.

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Fly Around

Elon Musk subpoenaed in Epstein-JPMorgan case — WSJ: “Elon Musk is being asked to turn over documents as part of a civil lawsuit by the U.S. Virgin Islands against JPMorgan Chase over the bank’s relationship with Jeffrey Epstein, according to court documents filed Monday.”

People moves — Navtej Dhillon is now chief of staff to National Economic Council director Lael Brainard and a special assistant to the president. He most recently was a special adviser to the National Security Council where he helped shepherd Ajay Banga to lead the World Bank and is an alum of the Federal Reserve and International Finance Corporation. (h/t Daniel Lippman)

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