On September 17, 2024, the Antitrust Division of the United States Department of Justice (the “DOJ”) announced that it withdrew its 1995 Bank Merger Guidelines and instead, for purposes of evaluating the competitive impact of bank mergers, will rely on its 2023 Merger Guidelines, which apply to all industries. In conjunction with its withdrawal from the 1995 Bank Merger Guidelines, the DOJ issued a “banking addendum” (the “Addendum”) to its 2023 Merger Guidelines identifying those portions of the 2023 Merger Guidelines the DOJ considers to be particularly relevant when evaluating bank mergers.
The Addendum provides high level insight into the factors that the DOJ will consider in analyzing a bank merger transaction, but not a robust amount of detail. Notably, as practitioners are aware, the banking agencies conduct their own antitrust review of a bank merger transaction, and sign-off from a banking agency on the antitrust impact from a transaction does not necessarily mean that the DOJ will similarly sign-off on the transaction, and vice-versa. In particular, the Addendum notes that “competition concerns may impact other factors such as the convenience and needs of the community, and bank regulators may choose to take these competitive considerations under advisement when assessing these other factors.”1
The Addendum provides that the DOJ may challenge the legality of a merger transaction even following approval by the relevant banking agency, which would pause the ability of a transaction to proceed pending settlement with the Antitrust Division or decision in federal court on the competition issues. Notwithstanding the separate approval requirement, the Addendum also is clear to point out that the DOJ works closely with bank agencies to ensure consistent application of laws and regulations within each agency’s particular area of expertise.
Key Takeaways
For banks considering combinations where there may be even a remote possibility of antitrust concerns under the 2023 Merger Guidelines, the Addendum states that the DOJ will review “market realities” in analyzing the competitive effects of a particular transaction. While branch deposit concentration may be one area of focus (i.e., traditional Herfindahl Hirschman Index (HHI) analysis for deposit concentration utilizing the 2023 Merger Guideline baselines2), the DOJ will drill down into the products and services that a bank merger may affect prior to fully assessing the impact of a combination. This type of analysis may involve a more robust review of the competitive landscape (i.e., the impact of credit unions and other non-bank competitors), and a closer analysis of interest rates, types of mortgages and other loans offered, quality of service and convenience at branch locations, the types of customers served, and the unique needs in a particular bank market for bespoke financing.
The DOJ further notes in the Addendum that while demonstrative evidence may point to an anti-competitive transaction, the DOJ will consider rebuttal evidence to the contrary. Accordingly, banks should take advantage of the opportunity prior to executing any definitive transaction agreement to thoroughly document what the competitive landscape will look like following completion of a transaction in order to be in the best advocacy position in conjunction with the filing of regulatory applications.
With the prospects for bank M&A activity potentially heating up in 2025, bank executives are encouraged to analyze closely with their advisors the antitrust implications of a prospective business combination from the perspective of the DOJ, the appropriate bank regulator, and state antitrust agencies prior to entering into any definitive transaction agreement.
1 On the same date as the DOJ announcement of its withdraw from the 2023 Bank Merger Guidelines, the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency announced substantive changes to their own bank merger review process. The FDIC announcement, in particular, included substantive changes to its own merger review competitive analysis.
2 The 2023 Merger Guidelines provide that a merger transaction is rebuttably presumed to substantially lessen competition if it increases the HHI by more than 100 points in either (i) a highly concentrated market (i.e., a market with an HHI over 1,800), (ii) for a rebuttable presumption or (ii) where the combination will create a combined enterprise with over a 30% market share. This compares to the 200 point increase in HHI under the 1995 Bank Merger Guidelines.