2025 Fintech Compliance Preview - Part 2
Previewing M&A activity around the globe, with focus on key pending deals
(Note - all views are those of Fintech Compliance Chronicles/my personal views and not affiliated with any other organization)
Welcome back! As we kick off 2025, the Fintech and banking sector are buzzing with M&A activity that have kept regulators on their toes, from the US to Europe to China. These deals are not only re-shaping the financial landscape; they are stress-testing regulatory structures in courts. With each transaction, we are seeing a complex difference of antitrust concerns, shareholder rights and market impact.
In this article, we will break down the major M&A deals on the horizon, which are facing regulatory obstacles, and explain the priorities of the involved financial institutions. We will see how regulators are considering these deals and what compliance professionals should keep in mind.
Capital One/Discover
We have covered the Capital One/Discover merger extensively in these parts. What we haven’t talked about is other deals involving mergers/acquisitions of relatively large US banking institutions that offer a contrast. The deal that came to our mind was the acquisition by Wintrust Bank of Michigan-based Macatawa Bank, which has comparison points in terms of regulatory scrutiny and approval processes. Let's examine the key differences and reasons behind their respective statuses.
First, Discover and Cap One:
Timeline:
- February 20, 2024: Merger announced
- December 18, 2024: Delaware State Bank Commissioner approval received
- February 18, 2025: Scheduled shareholder vote - keep an eye on this. We will be covering this next week as it happens!
- TBD: Regulatory approval
Why is the deal still pending?
1. Size and Market Impact: The combined entity would become the sixth-largest bank in the U.S. with approximately $625 billion in assets. This significant increase in size raises antitrust concerns and requires more thorough regulatory scrutiny.
2. Regulatory Complexity: As a larger institution, Capital One is primarily regulated by the Office of the Comptroller of the Currency (OCC). The merger requires approval from multiple agencies, including the OCC, Federal Reserve, and potentially the Department of Justice.
3. Updated Merger Guidelines: The merger is being evaluated under recently updated guidelines from various regulatory bodies, including the FDIC and DOJ, which focus more on competition and consumer impact.
4. Political Scrutiny: The merger has drawn attention from politicians, with senators like Elizabeth Warren expressing concerns about potential anticompetitive effects.
5. Network Consolidation: The merger would combine Capital One's card-issuing business with Discover's payment network, potentially raising concerns about market concentration in the payments industry.
Wintrust and Macatawa:
Timeline:
- April 15, 2024: Merger announced
- July 31, 2024: Shareholder approval received
- August 1, 2024: Merger completed
Why was the deal completed so quickly?
1. Smaller Scale: The combined entity resulted in approximately $62 billion in assets, significantly smaller than the proposed Capital One/Discover merger, likely raising fewer antitrust concerns.
2. Regional Focus: The merger primarily expanded Wintrust's presence in West Michigan, maintaining a more localized impact.
3. Different Regulatory Oversight: Wintrust, as a smaller bank holding company, is primarily regulated by the Federal Reserve, which may have different criteria for merger approval compared to the OCC.
4. Less Complex Integration: The merger involved integrating traditional banking operations without the added complexity of a major payment network.
5. Shareholder Approval Focus: News reports emphasized shareholder approval, with less public discussion about regulatory hurdles, possibly due to the smaller scale and regional nature of the merger.
BlackRock/HPS Investment Partners
We don’t talk a lot about the asset management space here, but we would be remiss if we didn’t cover BlackRock's acquisition of HPS Investment Partners based purely on the large size of the potential combined company. This follows closely on the heels of Blackrock’s successful acquisition of Global Infrastructure Partners (GIP) in October 2024. These deals showcase BlackRock's aggressive expansion strategy in the private markets sector.
HPS Investment Partners Acquisition:
Timeline:
- December 3, 2024: Merger announced
- Mid-2025: Expected closing date (shareholder, regulator approvals)
Deal Structure:
- Total consideration: Approximately $12 billion
- 100% equity deal using 12.1 million SubCo Units exchangeable for BlackRock stock
Size and Impact:
- Creates a combined private credit franchise with approximately $220 billion in client assets
- Increases BlackRock's private markets fee-paying AUM by 40% and management fees by about 35%
Regulatory Considerations:
- Subject to regulatory approvals and customary closing conditions - Blackrock is currently embroiled with its regulator, the FDIC, on disclosures for its stakes in banks, so who knows what impact this disagreement could have on its approval for this deal.
Strategic Implications for BlackRock:
1. Private Markets Expansion: The HPS acquisition, coupled with the earlier GIP deal, significantly bolsters BlackRock's presence in private markets. This push aligns with the growing investor demand for alternative assets.
2. Diversification of Offerings: By integrating HPS's $148 billion in client assets with its existing $89 billion private debt platform, BlackRock is positioning itself as a top-five private credit manager.
3. Synergies Across Platforms: The combined entity aims to provide seamlessly integrated solutions across public and private markets, leveraging BlackRock's $3 trillion public fixed income business.
4. Enhanced Insurance Sector Capabilities: The addition of HPS is expected to strengthen BlackRock's position as a full-service provider for insurance clients, an area where HPS has a strong presence.
5. Leadership Integration: HPS founders will lead a new private financing solutions business unit within BlackRock, potentially bringing fresh perspectives and expertise to the larger organization.
Potential Implications for BlackRock:
1. Market Position: These acquisitions could solidify BlackRock's status as a major player in both public and private markets, potentially rivaling specialized private market firms like KKR and Apollo Global Management.
2. Cultural Integration: The success of these deals may hinge on BlackRock's ability to integrate the entrepreneurial cultures of HPS and GIP into its larger corporate structure. This is something we’ve speculated about as we’ve discussed Cap One/Discover in the past.
3. Regulatory Scrutiny: As BlackRock grows larger and more influential across various market segments, it may face increased regulatory attention and potential challenges - the FDIC tangle-up is a great example of this.
4. Client Offerings: The expanded capabilities in infrastructure and private credit could allow BlackRock to offer more comprehensive solutions to its global client base, potentially increasing its competitive advantage not just within the US, but around the world.
5. Financial Impact: The acquisitions are expected to result in modest growth for BlackRock's earnings in the first full year post-close, potentially driving long-term growth for the firm.
Apple Card and its suitors
This isn’t a true regulated tie-up, as it’s more akin to a sale of assets, but we’d be remiss if we didn’t cover it - the potential acquisition of the Apple Card portfolio from Goldman Sachs has attracted interest from several major financial institutions, each bringing unique strengths and considerations to the table.
A Recap - Loan Volume and Customer Base
The Apple Card portfolio represents a significant business opportunity:
- As of September 2024, Goldman Sachs had lent out approximately $17 billion through the Apple Card program.
- In early 2024, the number of Apple Card holders in the US was announced as 12 million.
Potential Acquirers:
Several financial institutions are in discussions to take over the Apple Card portfolio:
2. Barclays
Regulatory Status and Capabilities
JPMorgan Chase
- Regulated by the Office of the Comptroller of the Currency (OCC)
- Extensive experience in credit card issuance and management
- Strong technological infrastructure and digital banking capabilities
Barclays
- Regulated by the Federal Reserve and the OCC for US operations
- Previous experience partnering with Apple on the Barclaycard Visa with Apple Rewards
- Strong presence in both retail and investment banking
Synchrony Financial
- Regulated by the Federal Reserve
- Specializes in private label credit cards and consumer finance
- Already partners with Apple for buy-now-pay-later options
Potential Impact on Apple Card
JPMorgan Chase
- Potential integration with Chase's robust mobile banking platform
- Possible expansion of rewards program, leveraging Chase's expertise in this area
- Likely continuation of the Mastercard network partnership
Barclays
- Potential for international expansion of the Apple Card, given Barclays' global presence
- Possible reintroduction of Apple-specific rewards, similar to their previous partnership
- Strong retail banking experience could enhance customer service
Synchrony Financial
- Expertise in store-branded credit cards could lead to tighter integration with Apple's ecosystem
- Potential for expanded financing options on Apple products
- Possible challenges in scaling to match Apple's global presence
Key Considerations
1. Technological Integration: Any new partner will need to seamlessly integrate with Apple's existing infrastructure and maintain the user-friendly interface of the Apple Card.
2. Customer Experience: The chosen partner must be able to maintain or improve upon the current customer service standards, which have already been a point of concern under Goldman Sachs.
3. Regulatory Compliance: The new issuer will need to address or avoid the regulatory issues that led to fines under Goldman Sachs, particularly regarding dispute resolution and consumer protection.
4. International Expansion: While currently US-only, a new partner might facilitate the expansion of Apple Card to international markets.
5. Profitability: The new partner will likely seek to renegotiate terms to ensure profitability, as the original deal was viewed as "risky and unprofitable" by some potential acquirers.
Guotai Junan Securities acquires Haitong Securities
Going overseas, we proceed to China where two of the country’s largest state-backed brokerages merged - a significant event in the Chinese financial sector that closed in early 2025 after being announced in September 2024. Although this deal is done and not upcoming, it did close this year so we’re throwing it in as part of our preview.
Merger Timeline and Process
- September 5, 2024: Both companies announced the merger plan and suspended trading.
- October 9, 2024: Merger and restructuring preliminary plan released.
- November 21, 2024: Detailed merger and restructuring plan disclosed.
- December 13, 2024: Shareholders of both companies approved the merger plan.
- December 22, 2024: Hong Kong Securities and Futures Commission approved Guotai Junan as the surviving entity.
- December 23, 2024: China Securities Regulatory Commission (CSRC) and Shanghai Stock Exchange (SSE) accepted the merger application.
- January 9, 2025: SSE's Merger and Restructuring Review Committee approved the transaction.
- January 17, 2025: CSRC granted final approval for the merger.
- February 6, 2025: Last trading day for Haitong Securities.
- February 7, 2025: Haitong Securities submitted the application for voluntary delisting.
- February 10, 2025: Guotai Junan Securities resumed trading.
Key Details of the Merger
Transaction Structure: Guotai Junan will absorb Haitong through a share swap, issuing new shares to Haitong's investors in both mainland China and Hong Kong markets.
Exchange Ratio: 0.62 Guotai Junan shares for each Haitong share, applicable to both A-shares and H-shares.
Combined Entity Scale:
Total assets: Approximately 1.619 trillion yuan ($228.3 billion)
Net assets: 341.5 billion yuan ($48.2 billion) as of Q3 2024
Net capital: 177.4 billion yuan ($25 billion)
Market Position: The merged entity will become China's largest securities firm, surpassing CITIC Securities.
Capital Raising: Guotai Junan plans to raise up to 10 billion yuan ($1.4 billion) through a share placement to support the merged entity's development.
Integration Plans
Business Integration: The companies will swiftly integrate operations, licenses, and business divisions, ensuring smooth transition of business and clients.
Organizational Structure: A new corporate governance structure, management framework, development strategy, and corporate culture will be established.
Client Services: The merged entity will integrate and optimize retail, institutional, and corporate client service systems to enhance customer experience and expand client base.
Risk Management: A unified, vertically managed, and hierarchically authorized group-wide compliance and risk control management system will be implemented.
Technology Integration: The companies aim for safe and orderly system integration, effective utilization of basic resources, smooth customer experience transition, and rapid unification of company management.
Regulatory and Market Implications
Regulatory Significance: This merger is seen as a benchmark project in the current cycle of securities firm consolidation, being the first A+H listed securities firms' restructuring and the first involving top-tier institutions.
Industry Consolidation: The merger aligns with Beijing's strategy to create stronger, more competitive financial institutions capable of competing globally.
Market Impact: The combined entity is expected to lead in various business indicators, including investment banking income, net interest income, and scale of lending funds.
International Competitiveness: The merger is a step towards building a world-class investment bank, enhancing Shanghai's position as an international financial center.
BBVA / Banco Sabadell
Next we go to Spain, where the next deal is awash in history. BBVA traces its roots back to 1857 when it was founded as Banco de Bilbao in the city of Bilbao, Spain. Over the years, it has grown through mergers and acquisitions to become one of the largest financial institutions in Spain and a major player globally. Meanwhile, Banco Sabadell, founded in 1881 in the city of Sabadell, Catalonia, has a history spanning over 140 years. It has grown from a local bank to become Spain's fourth-largest banking group.
So on paper, the marriage makes sense. But this deal, unlike the aforementioned, has seen a bit of drama.
Deal Structure and Timeline
- Announced: May 9, 2024
- Expected closing: Mid-2025 (subject to regulatory approvals)
- Offer: 1 BBVA share for every 5.0196 Banco Sabadell shares, plus €0.29 cash per 5.0196 Sabadell shares (this was upped from the original May offer, in October 2024)
Where It Gets Ugly
BBVA initiated a hostile takeover bid for Banco Sabadell in 2024, bypassing Sabadell's board approval. If successful, this merger would create Spain's largest bank, significantly impacting the European banking sector. The combined entity would have:
- More than 100 million customers worldwide
- Nearly 7,000 branches globally
- Total assets exceeding €265 billion in Spain alone
BBVA argues that the merger would create a stronger, more efficient institution better able to compete in the European and global landscape. However, the proposal has faced opposition from Sabadell's management and shareholders, as well as concerns about potential impacts on competition and services for small and medium-sized enterprises (SMEs).
To address regulatory concerns, BBVA has proposed unprecedented measures to the Spanish National Markets and Competition authority (CNMC), including commitments to maintain branch presence in underserved areas and preserve credit lines for SMEs.
As of February 13, 2025, the outcome of this proposed merger remains uncertain, with regulatory reviews ongoing and Sabadell maintaining its opposition to the takeover.
The impact of the proposed BBVA-Sabadell merger on Catalonian banking customers is a subject of debate, with potential benefits and drawbacks:
Potential Benefits to Customers
1. Expanded Network: Sabadell customers would gain access to a larger network of branches and ATMs. The combined entity would have over 2,700 branches in Spain, more than double Sabadell's current network.
2. Enhanced Product Offerings: The merger could lead to a wider range of products and services, leveraging the strengths of both banks.
3. Increased Lending Capacity: BBVA estimates that the combined bank could lend approximately €5 billion more annually to households and businesses.
4. Global Reach: Sabadell customers, particularly businesses, could benefit from BBVA's international presence, potentially facilitating expansion into new markets.
Potential Drawbacks
1. Reduced Competition: The merger would create a dominant player in Catalonia, potentially leading to reduced competition and choice for customers.
2. Branch Closures: Despite BBVA's commitments, there are concerns about potential branch closures, especially in rural areas, which could affect access to banking services.
3. **Impact on SMEs:** There are worries that the merger could negatively affect credit availability for small and medium-sized enterprises (SMEs), which are crucial to Catalonia's economy.
4. Job Losses: Estimates suggest that up to 10,500 jobs could be lost, with a significant portion in Catalonia, potentially affecting customer service quality.
BBVA's Commitments
To address these concerns, BBVA has made several commitments, including:
1. Retaining branches in areas with limited competition[6].
2. Maintaining commercial terms for individuals and SMEs in underserved areas[6].
3. Preserving working capital lines for SMEs for 18 months post-merger[6].
4. Keeping the Sabadell brand alongside BBVA in certain regions[8].
Unicredit and Banco BPM
Lastly, we go to Italy. Here, we have Unicredit, a large European bank, looking to buy Banco BPM which is itself a newly created entity from the parts of Banco Populare di Milano, a bank that’s been around in Italy since the mid-1800s.
The proposed acquisition of Banco BPM by UniCredit represents a significant consolidation move in the Italian banking sector, with far-reaching implications for the industry, customers, and regulators.
Deal Structure and Timeline
- Announced: November 25, 2024
- Expected closing: June 2025 (subject to regulatory approvals)
- Offer: 0.175 UniCredit shares for each Banco BPM share (this has been sweetened from the original bid)
- Total consideration: Approximately €10.1 billion ($10.5 billion)
Size and Impact
- Combined assets: Approximately €995 billion (UniCredit's €800 billion + Banco BPM's €195 billion)
- Customer base: Over 100 million customers worldwide
- Branch network: More than 3,300 branches in Italy
- Market position: Would become Italy's largest bank by assets, surpassing Intesa Sanpaolo
Regulatory Considerations
- Primary regulators: European Central Bank (ECB), Bank of Italy, Italian market regulator Consob, Italian antitrust authority, Prime Minister's office (for golden power rules)
- Current status:
- UniCredit filed offer document with Consob on December 13, 2024
- Awaiting various regulatory approvals
Key Challenges and Concerns
1. Competition issues: Potential market dominance in several economically crucial regions, such as Lombardy (24% market share), Veneto (21%), and Emilia-Romagna (21%)
2. Job losses: Banco BPM CEO warned of up to 6,000 potential job cuts
3. Political scrutiny: Italian government considering invoking golden power rules
4. Integration challenges: Merging two large banking systems and cultures
Banco BPM's Response
- Rejected UniCredit's offer on November 27, 2024
- Cited insufficient valuation and concerns about dilution of geographic footprint
- Emphasized focus on its own strategic plan and recent moves (e.g., Anima Holding acquisition)
Financial Implications
- Expected synergies: €900 million annually before taxes (€800 million after taxes)
- UniCredit expects to fully integrate Banco BPM within 12 months and achieve the majority of synergies within 24 months
Broader Industry Context
This potential merger is part of a larger trend of consolidation in European banking, driven by the need for scale to compete globally and invest in technology. The deal, if successful, could spark further M&A activity in the sector and potentially lead to the emergence of stronger, pan-European banking institutions.
As of February 13, 2025, the outcome of this proposed merger remains uncertain, with regulatory reviews ongoing and Banco BPM maintaining its opposition to the takeover. UniCredit CEO Andrea Orcel has indicated that the bank has until March 2025 to consider improving its takeover bid, with a crucial deadline tied to UniCredit's shareholder meeting scheduled for April 10, 2025.
Unrelated Side Note - CFPB
Lastly, I’d be remiss if I didn’t acknowledge what is happening at the CFPB. Mixed emotions here, as there have been times where the industry has pointed out cases where the Bureau has gone past its mandate. But on the other hand, customers have received $21 billion directly as a result of the Bureau’s efforts, and most notably for this newsletter, it produced an extremely valuable database of complaints that comes directly from consumers and the institutions responding to them. Without their efforts, do we fall back into an era of BBB, Google Reviews, Social Media, and more but without the teeth and monetary compensation? It remains to be seen what will happen here, but hoping for something that achieves common sense regulation while respecting the work that the folks there have been doing and making sure consumers are not screwed over.
Join us next time as we take a quick break from the preview series to analyze the expected vote by shareholders on the Discover/Cap One deal!