Trump's Victory Could Boost Bank Mergers with Regulatory Changes

Financial executives foresee that the potential return of presidential candidate Donald Trump to the Oval Office could lead to an increase in bank mergers and acquisitions. This scenario is expected to materialize with the appointment of regulators who support larger deals by a Trump administration. It is predicted that this change in regulatory stance will arise from the replacement of current financial overseers, who were appointed during the Biden administration and are characterized as more aggressive.

During a banking conference held in New York, Mitchell Eitel, managing partner at Sullivan & Cromwell, expressed confidence in the likelihood of significant deals being approved in the near future. The sector is expected to benefit from the loosening of capital rules and more lenient merger approvals under Republican regulators.

One notable deal currently under scrutiny, which could serve as a guide for future transactions, is Capital One Financial's (NYSE:COF) acquisition of Discover Financial, valued at $35.3 billion. This deal is viewed as a test case for the new regulatory approach.

Tom Michaud, CEO of investment bank Keefe, Bruyette & Woods, also expressed the expectation of increased merger activity, noting that a strong demand for bank deals has built up over time. Michaud suggested that larger regional banks could be allowed to expand through acquisitions, thereby challenging the dominance of the largest banks that have significantly grown deposits in recent years.

Michaud further pointed out that medium-sized banks often see capital returns improve when they scale through mergers. He cautioned that if the current trajectory continues without changes in the regulatory environment, only a few very large banks may emerge even more prominently in the future.