By Rebecca Ungarino

President Donald Trump's looser financial regulation has helped send bank mergers to a four-year high -- and more are on their way. Risks and opportunities abound.

Look no further than Comerica, the 34th-largest U.S. lender. It began life as the Detroit Savings Fund Institute, an early provider of savings accounts for customers who enjoyed a perk that was novel in the 1840s: earning interest on deposits. Over time, the firm combined with competitors, rebranded, and moved its headquarters to Dallas.

These days, Comerica -- the product of decades of mergers and centuries of reinvention -- finds itself at a critical juncture in what could be the latest wave in a long history of American bank consolidation.

In July, the bank reported per share earnings for the second quarter that topped Wall Street's expectations. Despite the beat, analysts on the call criticized CEO Curtis Farmer, citing a lagging stock price and disappointing growth -- "Curt, I'm sorry to interrupt; your loans have been flat for a decade," Baird analyst David George said on the call -- and questioned whether the firm has earned the right to stay independent. An activist hedge fund is now urging Comerica to seize on an opportune regulatory climate, follow rivals doing deals this year, and sell itself.

A mergers-and-acquisitions solution to Comerica's problems might have been a less realistic option just a year or two ago. The Trump administration, however, scrapped stringent merger guidelines this summer and pushed for faster bank-deal reviews. Where investors would have had little conviction that Comerica might feasibly boost its value by finding a buyer, now it might be the best option, in investors' eyes.

Comerica doesn't necessarily see it that way. A spokeswoman for the bank said its priority is protecting and growing shareholder value, and that it has a "robust, differentiated franchise, operating in desirable, high-growth markets with a solid capital position, competitive funding profile, and structural revenue tailwinds." But that is unlikely to end the M&A chatter.

And not just for Comerica. An analysis by S&P Global Market Intelligence listed 118 bank tie-ups worth a combined $23.3 billion in value that have been announced in the U.S. so far this year, on pace to surpass last year's 126 deals and already topping its $16.3 billion in combined value. In 2023, there were 96 such deals worth $4.1 billion. All of those totals are still far below the peak of nearly 500 bank deals in 1998, according to Morgan Stanley data. In this new age of financial regulators more aligned with bank lobbyists' wishes, expect dealmaking to accelerate.

"There could be over $100 billion in bank consolidation in these next few years, and that will set the stage for the next decade," says Grant Gregory, co-head of North America financial institutions investment banking at Morgan Stanley. "If you want to set yourself up to be a survivor bank for the next 10 to 15 years, there is a window to accomplish what you need to accomplish."

Banks need more-than-willing regulators to embrace the urge to merge. The year got off to a slow start due to the White House's trade wars, intense market volatility, and worries about slowing economic growth. But as the market has acclimated to the environment, tailwinds are replacing headwinds. Expectations of lower interest rates, for instance, tend to boost dealmaking with cheaper funding costs, buoyant markets, and higher multiples. Adding to bankers' optimism is the generally healthy state of credit quality in the industry -- a key factor that banks consider while examining a potential target's books.

But the easing of regulatory restrictions has probably provided the biggest boost. Regulators are acting quickly to support M&A among banks, clearing the way for management teams, who have plenty of cash on hand, to evaluate deals more aggressively than they did during the Biden administration. Firms are already capitalizing on that shift. Twenty-six U.S. bank mergers were announced in July, the highest monthly number and the largest monthly aggregate deal value since 2021, according to S&P Global Market Intelligence.

"When you don't have currency, it's obviously more difficult to do deals. When you have currency, it certainly helps to have a friendly administration," says Jeffrey Levine, global co-head of Houlihan Lokey's financial services group. "Now, you have both."

Republicans and Democrats tend to find common ground in two basic beliefs around bank mergers: that promoting competition is good, and that seeing a small group of megabanks consolidate power is bad. Republican regulators, however, say Democrats use overly burdensome approaches to supervision that raise compliance costs on smaller banks, reduce consumer choices, and leave banks with no choice but to merge to keep serving customers. Democratic regulators, meanwhile, blame Republicans' lax oversight for bank consolidation, and say bank mergers should go through more-robust reviews to prevent creations of more banking behemoths that, they say, stifle competition.

With Trump back in the White House, banks are responding to his administration's message -- from Federal Deposit Insurance Corp. Acting Chairman Travis Hill, Federal Reserve Vice Chair for Supervision Michelle Bowman, and other officials -- that they will face fewer checks and less pushback on desired mergers.

No deal demonstrates that more than Capital One Financial's controversial acquisition of Discover Financial Services in a $35.3 billion all-stock megadeal that closed this past May. The merger had drawn intense opposition since early 2024. Consumer-advocacy groups and some lawmakers say the combined bank will drive up fees, concentrate power, and lead to less competition, while the two banks say the combination will reduce consumer costs, offer more choice, and allow the combined entity to compete with larger banks. The deal's eventual approval showed bankers what was possible in the new regime: a willingness to greenlight transactions that would otherwise have faced greater scrutiny.

The deal made Capital One the largest U.S. credit-card issuer and the sixth-largest bank by assets, while demonstrating another driver of mergers -- the need for size. While small banks make up the vast majority of the 4,414 lenders in the U.S., they need to compete with Bank of America, Citigroup, Wells Fargo, and the $800-billion JPMorgan Chase, whose market capitalization is more than the other three combined. Now, smaller banks find an easier path to merging as a way to fortify themselves and compete against dominant lenders.

Data from the FDIC -- a primary banking regulator, alongside the Fed and Office of the Comptroller of the Currency -- shows that the number of U.S. banks has declined by 75% from a peak of 18,083 in 1986. Consumer demands for better technology and services are part of the banks' quest to scale up and reduce costs of tech and talent.

"Technology has helped level the playing field for the smaller banks in terms of transactional product offerings, but it's the same thing we're seeing in every sector in financial services -- a barbell approach," says Houlihan Lokey's Levine.

The largest banks service individuals and businesses in need of everyday transactional services, such as checking, savings, and wealth management accounts, while smaller banks will retain personal connections with longtime clients and local-business owners. "There's going to always be a demand for that senior-level access and advice," Levine says. "Everything in between, it will be difficult to support -- so we'll continue to see consolidation."

That is exactly what's happening. This past week, PNC Financial Services Group said it would buy the private, Colorado-based FirstBank in a cash-and-stock deal valued at $4.1 billion, the second-largest announced bank deal of 2025. The transaction gives PNC the largest share of both retail customers' deposits, at 20%, and branches, at 14%, in Denver. "We just effectively bought Colorado," PNC CEO Bill Demchak declared at an industry conference on Sept. 9.

Huntington Bancshares, among the largest Ohio-based banks, is set to acquire Dallas-based community lender Veritex Holdings for $1.9 billion. Two deals announced in the spring closed in early September: Columbia Banking System's $2 billion acquisition of Pacific Premier Bancorp and the $3.3 billion merger between California's Mechanics Bancorp and Seattle's HomeStreet Bank. The only thing standing in the way of more deals might be a lack of sizable-enough banks.

"You are actually starting to have scarcity value," Keefe, Bruyette & Woods President and CEO Tom Michaud tells Barron's, noting that most U.S. banks have less than $10 billion of assets.

"There's now scarcity value to the banks of size, so you could create a competitor to the big four," Michaud says. "That is the strategic discussion happening in bank management suites and boardrooms."

While banks may be hungry for deals, the market's poor response to the largest bank merger so far this year has raised questions about what shareholders want. Nashville's Pinnacle Financial Partners and Synovus Financial of Georgia proposed an all-stock merger valued in July at $8.6 billion. Their shares fell by 16% and 17%, respectively, over the next week, prompting debate about whether the market didn't like that specific combination, the fact that it was a merger of equals, or doubts about M&A generally, writes Truist Securities analyst John McDonald, who thinks it's a mix of all three. It also raises a bigger question over whether "bank investors actually like M&A, or whether they just like talking about it," notes McDonald.

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September 12, 2025 02:30 ET (06:30 GMT)

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