Five M&A themes in the banking sector in 2025

Smaller banks may seek M&As to solve or mitigate compliance costs.

Smaller banks will continue to come under pressure to pursue mergers and acquisitions (M&As) in 2025, whilst the trend to “live books” may become more prevalent.

These are just two of the five trends that may rule the banking industry’s M&A space in 2025, according to Norton Rose Fullbright’s “M&A in the banking sector: Key themes for 2025” report published in January.

Whilst “too big to fail” players may consider large-scale cross-border mergers to be out of favor at the moment, the smaller banks will continue to face headwinds related to organic growth, the report said.

These smaller banks' boards will come under pressure to use M&A as a way to bolster growth but also solve or mitigate compliance costs.

“[Another] challenge for those boards will be to avoid the hunter becoming the hunted as larger institutions continue to look for consolidation opportunities in that segment of the market,” Norton Rose Fullbright wrote.

Meanwhile, the trend of “live book” sales may become more prevalent as banks focus on cost to income ratios and the need to maximise exit values.

“Live book” sales bring a number of additional complexities in the M&A context, including anti-trust issues, automatic transfer of employees and tax.

However, the additional value generation that these structures can bring for the selling banking groups may be a driving factor in the frequency of these structures in 2025, Norton Rose Fullbright said.

US bank M&As: Is it time?
The expected strengthening of the US financial sector, meanwhile, may result in the “dam breaking” for US bank M&As.

Regulatory hurdles to bank mergers are expected to be lower in the Trump administration.

The rebound in prices of US financial institutions, lower costs for acquisition financing, and nearly 4,000 commercial banks in the US, makes it likely that 2025 will see a significant increase in deal volume, Norton Rose Fullbright said.

However, the US bank M&A market may not be quite as attractive to non-US acquirors. Many non-US banks may face headwinds in the market due to recent regulatory difficulties.

“Nevertheless, it could be an appropriate time for non-US banks seeking a foothold in the US market through a Federal Deposit Insurance Corporate-insured bank subsidiary to wtake a closer look at the potential opportunities,” Norton Rose Fullbright wrote.

Private credit partnerships, EU IPU regime
Private credit partnerships may also rise in 2025, with the regulator environment remaining favourable to non-bank financial intermediaries (NBFIs), at least in the short to medium term.

Coupled with the potential regulatory capital impacts of the EU’s revised Capital Requirements Regulations III framework on certain asset classes for banking groups, Norton Rose Fullbright says that it is “safe to assume that conditions for these types of partnerships, and transactions like them, will remain appealing.”

The intermediate EU parent undertaking (IPU) regime may also influence the M&A space in 2025.

Some-EU banking groups could notably get discouraged from M&As in order to maintain their EU banking assets below the €40 billion assets threshold.

“The corollary of this, however, is that EU banking groups may see an opportunity to pick up banking assets from those non-EU institutions that may be approaching this level,” Norton Rose Fullbright wrote.

Further, a growing number of synthetic and non-synthetic structures developing that may give such non-EU banking groups a genuine alternative route to maintaining growth in these circumstances, it added.