The Scoop
The US Justice Department will overhaul its reviews of bank deals and other mergers involving financial services firms, Jonathan Kanter, the agency’s top antitrust cop, told Semafor.
The move will have major implications for the financial industry by casting a broader antitrust spotlight onto nonbank players, like private equity, private credit, and fintech companies that act as lenders.
“Our analysis has to focus on market realities,” Kanter said, speaking at a Semafor event in New York Monday evening.
The new rules would replace the DOJ’s existing guidelines, which focus on branch overlap and deposits when deciding whether two banks can merge. They could be announced as soon as Tuesday, a person familiar with the matter said.
The DOJ’s guidelines for regulating bank mergers haven’t been updated since 1995, when ATM cards were cutting-edge and banks were offering toasters to new customers, Kanter said to an audience heavy on M&A lawyers. “As a result, it looks at things — narrowly — like branch overlaps [and] deposits. I don’t believe that is the appropriate, most state-of-the-art, effective way to think about concentration in banking.”
The changes could cut both ways for banks looking to merge, potentially easing the path for community or regional lenders looking to shore up their deposit bases and cut costs by consolidating branches. The FDIC’s brass is set to finalize its own approach to bank mergers on Tuesday, and the coordinated timing suggests it’s likely to square with the DOJ’s.
But a key consideration is whether the Federal Reserve, which reviews deals based on their impact on the financial system, among other criteria, is on board. It operates independently of the DOJ, which can still sue to block deals approved by the Fed.
In this article:
Know More
Kanter and his counterpart, Federal Trade Commission Chair Lina Khan, are at the center of the Biden administration’s crackdown on corporate consolidation and power. They have been aggressively swatting down mergers, taking companies that fight them to court. They have also brought monopoly cases against companies including Google and Apple that, if successful, could reshape Big Tech. The DOJ won one of its cases against Google, over the company’s search dominance. Another, targeting its role in online ads, is underway.
The government has also gone after corporate middlemen that connect buyers and sellers, accusing Live Nation and RealPage of illegally monopolizing the ticket sales and rental housing markets, respectively. It is also investigating pharmacy benefit managers, which sit between pharmacies and insurers, and help set prescription drug prices.
Other takeaways from Semafor’s interview with Kanter:
- Deal fixes don’t work: Companies expecting to get their deals approved by agreeing to sell some assets should think again. By the government’s own math, a third of company remedies — including divestitures — either failed at restoring competition or took many years to do so. Many of the spun-out companies went bankrupt.
“We will always listen to remedies, and we are not categorically opposed to them, but we need to learn from our experiences,” Kanter said. - On AI: “We think about substance over form,” he said of partnerships between big tech companies and AI startups, which the DOJ and FTC are jointly investigating as potential stealth takeovers, designed to avoid government review. Microsoft, Google, and Amazon have invested billions of dollars into AI firms, hired their employees en masse, and in some cases paid out their venture investors — all hallmarks of M&A deals.
“Often the next competitive threat comes from the innovative startup that might disrupt an incumbent,” he said. Earlier antitrust regimes waved through arrangements that headed off that disruption — Facebook buying Instagram, for example — and Kanter sounded determined not to repeat that with AI. - Across the aisle: Antitrust isn’t a partisan issue anymore, with some Republicans — most notably vice presidential candidate JD Vance — taking as strong a stance against corporate consolidation as Democrats historically did. Kanter was careful about wading into the 2024 race, but said he’s “heartened by the degree to which the broader public believes antitrust is good for society.”
Liz’s view
Sweeping nonbanks into antitrust reviews is a no-brainer and an overdue acknowledgement that the financial landscape has changed dramatically. It could hand the DOJ significant power to police a huge and growing part of the economy that has escaped regulatory attention for too long.
The wave of bank mergers in the 1990s that prompted the previous rules were about building national branch networks and gathering deposits, so it made sense to review them that way. Regional tie-ups produced Bank of America and, a few years later, today’s JPMorgan Chase.
If Kanter’s guidelines are just a new way to police bank mergers, that’s all well and good. But I’ll be watching to see if it ushers in a broader look of competition in the lending market, particularly among banks’ lightly regulated cousins in the asset-management industry. Firms like Apollo and KKR have created parallel lending universes, vertically integrated to a degree that John Rockefeller would have admired. The Fed, in its role as the financial system’s safety cop, hasn’t been all that interested. The arrival of antitrust cops could be interesting.
Another note: Kanter didn’t comment on any specific transactions, but his view bodes poorly for the pending $35 billion merger of Capital One and Discover. The two firms have little overlap in deposits and branches and would likely have sailed through a traditional merger review. But a DOJ with the explicit mandate to look at competition in credit cards, payments rails, and merchant fees will likely have concerns.
Room for Disagreement
The Progressive Policy Institute, a centrist Democratic think tank, says that even under a broader review, the Capital One-Discover deal isn’t “a clear-cut case of a merger that is likely to substantially lessen competition.” If they challenge it in court, antitrust regulators risk losing in the first big test of their new approach, PPI’s Diana Moss writes.
Notable
- FTC Chair Lina Khan may have to fight to stay in the next administration, no matter who wins the presidential race, Semafor reported.