Consolidation in the U.S. banking sector is expected to be limited in the near future due to high interest rates and regulatory pressures, according to Citizens Financial Group CEO Bruce Van Saun.
The current high interest rates make it difficult for banks to make profitable acquisitions, Van Saun said, according to a Bloomberg report Wednesday (Sept. 6). Additionally, the regulatory environment in Washington remains uncertain, further dampening the prospects for bank mergers.
Van Saun predicted in the interview with Bloomberg Television that smaller lenders may engage in some transactions, but overall, deal activity will be muted over the next six to 12 months.
The challenges facing the banking sector are twofold, Van Saun said, according to the report. Firstly, the high interest rates make it less attractive for banks to pursue acquisitions as the “deal math does not work very well.” Secondly, the regulatory landscape is still unclear, making it difficult for banks to plan their strategies. Van Saun emphasized, “it is still opaque in Washington as to what their posture is.”
The collapse of Silicon Valley Bank and First Republic Bank earlier this year has led to increased scrutiny from regulators on the U.S. regional banking industry, the report said.
In response, some banks are taking proactive measures to strengthen their capital and improve liquidity. They are shrinking their balance sheets in anticipation of stricter rules and higher interest rates. This cautious approach is aimed at ensuring compliance with the regulatory requirements and maintaining stability.
Despite these challenges, Van Saun remains confident in Citizens Financial Group’s ability to navigate the changing landscape, per the report. He said that the increased scrutiny from regulators is “all manageable” and does not impact the bank’s operations. Van Saun expressed confidence in the bank’s strength and talent to meet the expectations set by regulators.
Citizens Financial Group has also seen a stabilization in deposit flows, with Van Saun stating that the worst is behind them, according to the report. Additionally, he mentioned that the capital markets are starting to open up, with more deals expected in the coming months. This increase in deal activity is expected to boost revenue for banks.
PYMNTS reported in July that while regional banks are still facing a variety of pressures, they were doing better than they were three months earlier in terms of deposits. Second-quarter results released during that month showed that many regional lenders’ deposits were stable or higher than they were in the first quarter.
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