DETROIT—President Trump's stance on deregulation, as well as declining interest rates, could lead to a big year for credit union purchases of banks in 2025, says Michael Bell.
That environment, said the pioneer of CU/bank deals, may lead to even more agreements next year than 2024’s record performance.
As CUToday.info reported, OneAZ Credit Union’s purchase of 1st Bank Yuma set the one-year record for these agreements at 17. This year’s current total is 20.
Bell, a partner and chair of the Financial Institutions Practice Group at Honigman, LLP, said he believes the 2024 deal number will end in the low 20s.
“The current administration has taken somewhat of an anti-consolidation approach when it comes to financial institutions,” said Bell, citing the Biden Administration’s focus on regulation. “I think the new administration has an opposite outlook, and will work to change all that.”
Clear Message From Biden Administration
The messaging from the current administration that has been funneled through regulators has been very clear, said Bell.
Michael Bell
“Anti-consolidation, anti-large financial institution, whatever that might mean, and scrutiny, scrutiny, scrutiny,” said Bell, who has been part of more than 65 whole-bank agreements, plus additional bank branch purchases. “That's been the messaging and the regulators listen to that, as that is their job. I don't care what deal you put before regulators today they're going to see that color through their lenses. The new Trump Administration will not have any of that messaging, and will let the free market work. They will make sure we're safe and sound, but won’t stand in the way of business—and that is material.”
Bell acknowledged that even in a tight regulatory environment, credit union purchases of banks have gained traction with buyers and sellers. What should make an even bigger impact on these deals, according to Bell, are falling rates.
“I usually take the position that rates are whatever rates are and everybody adjusts,” said Bell. “So, interest rates don’t drive or stop deals. However, they certainly affect them. We've had such high rates for so long, and as these rates finally step down, we're going to see increased economic activity. But, more importantly, psychologically bank customers and credit union members are going to be buoyed by this, and so are financial institutions’ business. There is going to be a feeling of optimism.”
Puzzle Pieces Get Better
There will be real business benefits for banks and CUs that come from lower rates, added Bell.
“As rates fall, certain pieces of this puzzle get better,” Bell said. “On the buy side, subordinated debt or secondary capital is going to be cheaper. That's a big deal if currency gets cheaper. On the sell side, a lot of these sellers have unrealized loss issues regarding their investment portfolios. They locked in at lower rates and then rates rose. Lower rates will help reduce their cost of funds.”
Bell pointed out that through November the Fed had cut rates by 75 basis points.
“If we continue to see these drops next year, and the total rate drops get around to around 1.5% to 2%, that's material when it comes to secondary capital and unrealized losses. It makes these deals easier,” he said.
While Bell forecast the number of credit union purchases of banks will land in the lower 20s this year--noting he expects one to three more deals before year-end--he added, "It does get tricky with the holidays."
Bell reiterated the new political and interest rate environments bode well for a repeat of 2024.
“If not even better,” he said, adding that an emphasis on deregulation could also dampen bankers' efforts to persuade Congress to scrutinize CU purchases of banks and place road bumps, such as an “exit fee,” in front of agreements.