Foreign lenders see opportunity as bank consolidation intensifies in the US

With many smaller U.S. banks now “too small to succeed,” bank consolidation is expected to continue apace in the coming years, with the number of regional lenders falling from about 4,500 to 1,000 over the next two to three years, the said former Barclays banker boss Bob Diamond.

The dealmaking climate that began before the US election is likely to create opportunities for new entrants from abroad.

Speaking at the FT and The Banker Global Banking Summit on Wednesday, Diamond, who is now managing director of Atlas Merchant Capital, the investment vehicle he founded in 2013 after leaving Barclays, said consolidation was expected “regardless.” “which government will be elected”. but that it will happen more quickly under the new Republican leadership.

According to an analysis by Alvarez & Marsal, U.S. bank acquisition deals reached a total value of $12.5 billion in November 2024, compared to a total of $4.3 billion in announced deals in 2023.

A&M expected merger and acquisition activity to increase and said banks should “put in place due diligence and integration routines now so that they are ready to act when they are ready.”

Bharat Poddar, global co-head of banking at BCG, said U.S. banks’ productivity, “particularly regional banks,” is very low compared to other lenders.

“At some point the realization will come and the regulator and the local community will have to decide: Do we want a bank that is just outdated or do we want a bank that is actually the bank for the community? said Poddar.

Diamond sees this as an opportunity for both investment and a stronger U.S. banking sector, suggesting possible entry by foreign banks. “I think it’s the best investment opportunity I’ve ever seen,” he said.

“Many of the community banks have great customers and great customer service, but they can no longer generate a positive return on equity. (…) Consolidation can be a really very positive thing in terms of creating a very strong regional and municipal sector, but with stronger banks,” he added.

Regulators don’t want banking giants like JPMorgan to get bigger and more concentrated. Therefore, the US banking sector could see more private capital flows and the entry of non-US banks into the sector.

“(Regulators) want private capital. They want Atlas Merchant Capital to go to their investors, whether they are sovereign wealth funds from the Middle East or wherever, and bring private capital into the sector,” Diamond said.

“I think it will bring non-US banks into the sector for the first time. “It’s going to be a fascinating sector,” he said.

Jill Gateman, co-head of U.S. commercial banking at TD Bank, echoed the forecast, noting that middle-market businesses in the U.S. are “somewhat underserved” and could provide market opportunities for non-U.S. banks.

“Nobody really wants to pay attention to this market segment because there is no money for it. (…) There are only a few (global systemically important banks) that actually have real branch banking capabilities that can help (the US middle class),” she said.

“I see real, true value for the U.S. domestic banking market if someone wants to come in and really serve that middle market segment in this way.”

Diamond said foreign banks were “already looking to enter the market,” adding that two or three foreign banks had shown “very, very strong interest in both SVB and First Republic.”

“If we have time to think about it, we will see interest from many international banks and many non-American banks,” he said.