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Capital Markets Open Up
Improved valuations — and renewed M&A activity — have reinvigorated the capital markets for banks.
Roughly half of the bank CEOs, senior executives and board members responding to Bank Director’s 2025 Bank M&A Survey, conducted in September, said their bank’s leadership had discussed raising capital from a third party in 2024-25. A subset of that group, comprising 15% of responses, had agreed to move forward with raising capital or started the process.
Data from S&P Global Market Intelligence finds capital raise activity on the upswing among public banks through the third quarter. While still below 2022 activity, capital raises were up 45% year-over-year compared to a dip in 2023. Contributing to the uptick was a 23% year-over-year increase in capital sourced from common equity.
Much of that activity since July has been driven by M&A, says Chris Marinac, director of research at Janney Montgomery Scott. Recent examples include $54 billion Evansville, Indiana-based Old National Bancorp, which announced a common stock offering with its acquisition of Bremer Financial Corp. on Nov. 25. Independent Bank Corp., a $19.4 billion holding company in Rockland, Massachusetts, announced on Dec. 9 that it will acquire Enterprise Bancorp and raise roughly $250 million in subordinated debt before that transaction closes late next year.
Announcing a capital raise concurrent with a deal assures investors that the transaction will likely cross the finish line, says Marinac. “There’s an implicit understanding that, if there’s capital brought to the table, it’s harder for the regulators to say, ‘No,’” he says. It’s a trend he expects to continue into 2025. “Not every M&A deal is going to have capital, but it’s going to become more and more prevalent.”
Banks aren’t only raising capital to fuel M&A. The 2025 Bank M&A Survey finds that most capital raises will be used to fund organic growth, which could help some banks chip away at loan concentrations. And institutions are still working to restructure their balance sheets to deal with underwater assets, typically loans or securities that lost value when interest rates rose in 2022 and 2023.
Overall, the markets favor these moves, but “that is a week-to-week, month-to-month thing,” says Marinac. He expects banks to continue to take advantage of the current window through at least early 2025, but the winds could shift based on interest rate movements or geopolitical events. “The markets are still very volatile.”
• Emily McCormick, vice president of editorial & research for Bank Director
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