A bank merger ‘mirage’

From: POLITICO's Morning Money - Tuesday Jan 30,2024 01:02 pm
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POLITICO Morning Money

By Zachary Warmbrodt

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QUICK FIX

Washington is beginning to revamp the way officials review bank mergers. It’s not landing the way the industry nor the industry’s biggest critics would like.

Acting Comptroller of the Currency Michael Hsu on Monday announced big changes to how his agency will scrutinize banking deals, in a bid to “improve transparency and trust in our bank merger processes.”

The OCC plans to scrap a long-running practice of allowing some merger applications to be approved automatically after a comment period. The agency is pairing the change with what Hsu calls new “chalk lines” — guidance that indicates which transactions can expect to get timely approval, based on things like supervisory ratings, open enforcement actions and other compliance concerns.

Hsu is also calling for a broader rethink of mergers. He’s proposing a “macro view of the banking system” to consider the extent to which bank consolidation is balanced with the needs of the “diversity, dynamism and size of the U.S. economy.”

Banking experts say the moves will do little to reinvigorate deal-making, while critics argue it could have a chilling effect.

“It feels like more of a mirage than an oasis,” BTIG director of policy research Isaac Boltansky said. “There is nothing here that shields bank M&A from the subjectivity and political winds that define the current process.”

Karen Petrou, managing partner of Federal Financial Analytics, said the new policy will provide at least some certainty for national banks but that almost no deals of size will get done without the Federal Reserve and the Justice Department. The Fed and DOJ have been promising a new bank merger review policy but “it’s still nowhere to be seen.”

Keith Noreika, a veteran banking lawyer who led the OCC during the Trump administration, said “it sounds almost like the people who want to filibuster and delay and go on forever are normalizing that.” The Bank Policy Institute, which represents larger lenders, also knocked the proposal.

“If you’re going to have true transparency, show us transparency on the inside of the agency,” said Noreika, who is now executive vice president of Patomak Global Partners.

Yet Hsu and other bank regulators are facing pressure to take a harder line on bank consolidation. Americans for Financial Reform, which advocates for tougher bank oversight, said via spokesperson Carter Dougherty that Hsu is “only taking baby steps away from the decades-long approach of rubber stamping most bank mergers.”

“His remarks gave short shrift to the harms of bank mergers to disadvantaged communities, and the new policy statement is a poor substitute for finalizing updated merger guidelines,” Dougherty said.

National Community Reinvestment Coalition President and CEO Jesse Van Tol said some of the broad highlights Hsu laid out are “promising.” He cited Hsu’s decision to end “default approval” of some mergers and his commitment to launch a public database on the agency’s merger reviews.

Sen. Elizabeth Warren (D-Mass.) is pushing regulators to do more. She told MM in a statement that “it’s past time for the OCC’s actions to live up to its words.”

“Under Acting Comptroller Hsu, the OCC has approved mergers that have worsened consolidation in the banking sector — including with its approval of JPMorgan’s purchase of First Republic last year that made America’s biggest bank even bigger,” she said. “We need regulators to crack down on bank mergers and to finally release stronger bank merger review guidelines.”

Hsu responded to the initial wave of feedback in a statement to MM.

“Every merger is different,” he said. “Some are good for communities, competition, and financial stability. Others aren’t. Instead of treating all mergers alike and playing ‘red light/green light’, we are clarifying and highlighting where the goalposts are to reduce uncertainty and to promote a diverse and dynamic banking system.”

It’s Tuesday — What do you think? Send a note to zwarmbrodt@politico.com.

 

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Driving the day

The FOMC begins its two-day meeting on monetary policy … Former Secretary of State Mike Pompeo and former Secretary of Defense Leon Panetta testify at the House China select committee at 9 a.m. … December job opening data is out at 10 a.m. … House Financial Services holds a hearing on China sanctions at 10 a.m.

Taking credit — Former President Donald Trump wants your thanks for the stock market’s recent surge.

“THIS IS THE TRUMP STOCK MARKET BECAUSE MY POLLS AGAINST BIDEN ARE SO GOOD THAT INVESTORS ARE PROJECTING THAT I WILL WIN, AND THAT WILL DRIVE THE MARKET UP,” he said on Truth Social.

You can try to square this with MM’s recent reporting about “hand-wringing” and fear among executives over Trump’s potential return to the White House.

Biden’s counterattack — The White House is preparing to frame Trump as the candidate of corporate tax cuts and President Joe Biden as the scourge of the ultra-wealthy, Adam Cancryn reports.

“It is a decidedly populist turn meant to overcome voters’ doubts about the state of the economy by moving the debate away from a referendum on Biden and into a choice between the two main parties,” Adam writes.

On the Hill

Taking aim at AI — A new House Financial Services working group on artificial intelligence will seek feedback from regulators and the private sector before holding hearings this summer, Rep. French Hill (R-Ark.) told our Eleanor Mueller.

"We want to work through an overview of artificial intelligence as it relates to the financial services industry with regulators and how they're looking at the Biden executive order: what they're considering there, how they view it through the lens of what they're trying to do," said Hill, who leads the group with Rep. Stephen Lynch (D-Mass.).

Hill presented the plans at a retreat for committee Republicans Monday. Reps. Andy Barr and Blaine Luetkemeyer gave a presentation on national security and outbound investment. A top economist from Goldman Sachs gave a presentation on China’s economic outlook.

Crypto

House GOP preps AML plan — House Republicans are including crypto anti-money laundering safeguards in a revised version of their SEC-CFTC digital asset bill, Eleanor reports. Financial crime concerns are one of the biggest political sticking points in the current crypto debate on Capitol Hill.

"You've seen the back and forth over in the Senate; various titles and topics," Rep. Hill, one of the bill’s lead negotiators, said in an interview. "We've tried to look at what might have support in the House and what might have support in the Treasury."

When will the bill reach the floor? Hill said the timing for votes on crypto market structure and stablecoin legislation depends on when House Agriculture Chair G.T. Thompson (R-Pa.) takes the farm bill to the floor. The crypto market regulation bill is a joint effort between Financial Services and Agriculture.

“Only so many staffers exist on the planet to do two things at once,” Hill said.

Climate

First in MM: Climate advocates pressure Vanguard — From Jasper Goodman: A group that's pushing Vanguard to pursue climate-conscious investing is out with a new ad targeting the asset manager for pulling out of an investor alliance that's trying to hit net-zero emissions by 2050.

The Sunrise Project ad accuses Vanguard of "getting climate marching orders" from right-wing politicians. It will air outside Philadelphia, near where the firm is headquartered.

Vanguard declined to comment. The firm says on its website that "climate risk is a material financial risk for companies and their shareholders" that it takes seriously on behalf of investors.

Taxes

New York sues the FDIC — Bloomberg reports that New York City is taking the FDIC to court over $44 million in unpaid taxes tied to the failed Signature Bank.

Fly Around

People moves Tom Nides has joined Blackstone as vice chairman … Jim Esposito, co-head of Goldman Sachs’s global banking and markets division, plans to leave after nearly 30 years with the bank, per the WSJ.

 

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