Bankers are hopeful that President-elect Donald Trump’s return to office will bring a friendlier environment for mergers, reversing the dealmaking doldrums of recent years.

But how big could the transactions get? And, equally important, will banks want to do them?

The questions are back on the table for analysts, who are keeping a pulse on whether regional banks with more than $100 billion of assets will start easing back in the M&A fray.

“Investors are rethinking how consolidation can reshape the industry,” said Terry McEvoy, an analyst who covers big and regional banks at Stephens.

But even though some banks chase scale like moths to a flame, recent history shows bigger isn’t always better. Investors still feel burned by the biggest bank deal since the 2008 crisis, the rocky merger that formed Truist Financial in 2019.

There are also signs that a Trump administration, whose populist-leaning Vice President-elect JD Vance is no fan of big banks, may not immediately usher in a spate of blockbuster deals. 

But investment bankers, lawyers and analysts all agree the incoming regime should grease the wheels for higher-dollar M&A. And its first big test is already in motion.

Capital One Financial’s proposed $35 billion purchase of credit card competitor Discover Financial Services has faced criticism from progressive groups and antitrust hawks, and analysts expected it’d face a bumpier road under a merger-skeptic Democratic administration. But now Wall Street sees clearer signs of a finish line. The two lenders’ stock prices rose more than 15% on Wednesday after Trump’s victory.

If Trump’s return to the White House suggests the door is open for bigger mergers, some regional banks may start walking in.

The Southeast is rife with merger opportunities, analysts say, as smaller regionals look to compete with the $523 billion-asset Truist and the nation’s four biggest banks.

In recent months, two Ohio-based regionals, Huntington Bancshares and Fifth Third Bancorp, have dug in on growth plans in states like North and South Carolina, thus far organically. Dallas-based Comerica has also been expanding its Southeast footprint.

“They’re all moving into the Carolinas. Maybe they do a deal to accelerate that,” said Peter Winter, an analyst at D.A. Davidson. 

A third Ohio-based regional bank, KeyCorp, has said it will have more ammunition to make a deal after a recently announced $2.8 billion investment from Canadian giant Bank of Nova Scotia. 

Even so, the Truist experience will be a sticking point for banks inking agreements.

The massive “merger of equals” between SunTrust Banks and BB&T, whose overlapping footprints were expected to create a more efficient Southeast powerhouse, has thus far failed to fulfill executives’ hopes. In September, Truist CEO Bill Rogers laid out what he called a “reset” to improve profitability. Integrating the two banks’ systems also proved harder than executives expected, prompting customer backlash .

In light of those challenges, investors may prefer that any combination have a “clear buyer and a clear seller,” said Stephens’ McEvoy. Rather than running back the SunTrust-BB&T script, a bank with more than $100 billion of assets may choose to acquire a smaller regional lender, McEvoy said.

Mergers of equals “seem to be very hard to do,” D.A. Davidson’s Winter said.

“I don’t feel like the banks need to do a deal just to get bigger,” Winter said. A deal would make sense, he explained, if it has strategic value and is accretive to earnings, or if it allows the buyer to move into a contiguous market.

As banks eye consolidation, the regulatory milieu hasn’t been the only roadblock. Dealmaking, even among smaller banks, slowed over the last two years after interest rates rose sharply.

The higher interest rates hurt the value of banks’ bond portfolios, prompting “unrealized losses” across the industry.

Accounting rules dictate that banks must absorb those unrealized losses during mergers, and the hits that would be required made some mergers unpalatable . Fears of a recession, which thus far hasn’t materialized, also dampened deal activity, as banks worried about acquiring potentially problematic loans.

The need to “mark” down unrealized losses and bad loans during a deal remains a “hang-up that isn’t going away,” said Kirk Hovde, the investment banking head at Hovde Group, who focuses on M&A involving midsize banks and community banks.

But a post-election economic surge could mitigate credit concerns, Hovde said. And the boost to banks’ stock prices after Trump’s victory is pumping value into the currency that companies use in stock-based deals.

“With a higher stock price, some of these buyers can now pay that seller the price they were thinking they wanted, and make the deal work, even with the marks,” Hovde said.

Sandy Brown, a Dallas-based lawyer at Alston & Bird, said the run-up in stock prices may drive an era in which all-stock transactions are the norm.

But even under softer regulators, Brown cautioned that the government will still extensively review bigger deals, albeit more quickly than occurred over the last couple of years.

“I think the approval process will return to historic norms, which is: They’re not easy. These things are never rubber-stamped,” Brown said.