As recently’s suggested acquisition of OneWest Bank by CIT Group shows, merger and acquisition (M&A) activity in the banking sector is on a tear, no matter how you parse the numbers.

Will CIT OneWest Merger Deliver More Bank for Your Buck?

Through mid-May of 2014, there were 87 bank deals, a 32 percent leap over the very same period a year earlier and more than double last year’s 14 percent jump, SNL Financial reported.

Expanding its focus, SNL Financial also noted that from the start of 1991 through mid-2013, there were more than 5,800 filled out bank and thrift bargains, valued at $1.3 trillion.

More lenders likewise are bidding on this avalanche of handle the period of cheap money. In between 2011 and 2013, Keefe, Bruyette and Woods, a New York-based financial investment bank, reported that it saw multiple last bidders on 35 percent of the discounts for which it was an advisor. So far in 2014, KBW has actually seen that number reach 60 percent.

Pre-Great Economic downturn, there were more than 18,000 U.S. banks. Today there are less than 7,000.

So, given banking’s latest merger-mania infatuation, the concerns are, what’s driving all the activity and what does it all suggest for banks, shareholders and consumers? It’s a devilishly delicious question with practically as numerous answers and opinions as there are dollars locked away in the vault of J.P. Morgan Chase, the nation’s largest bank in terms of assets.

Deals never looked so good on paper

On paper anyhow, the argument for financial institutions getting hitched couldn’t be much more powerful. As an example, when CIT emerged from Chapter 11 defense in 2010, it was borrowing cash at a penalizing 13 percent. If it finishes its proposed acquisition of deposit-rich OneWest ($28 billion), its cost of funding will plummet to 2.4 percent.

This was sweet news to CIT shareholders, who roared their approval of the offer, driving CIT’s shares up 11 percent at the end of the trading day.

Whether it’s CIT’s discount, Capital One’s purchase of ING Direct UNITED STATE (2012), J.P. Morgan Chase’s acquisition of Washington Mutual (2008) and Bank One (2004), or Wells Fargo’s buyout of Wachovia (2008), exactly what’s not to like?

On a macroeconomic level, increased M&A activity signals an improving economy and climbing stock costs. For cash to develop wealth (which stems from the Latin root, to flow), it needs to continue distributing, a point financial investment lenders no doubt have been making with greater resolve and success on Wall Street.

On a theoretical level, mergers need to be complementary, producing an entity more powerful than the amount of its parts. Once again, in CIT’s traditional case of vertical integration, the bank is greatly broadening both its deposit base and its geographical footprint.

Out of such a merger, the possibilities are limitless. Conceptually, the CIT-OneWest merger should expand customer access to a growing array of products and services. For example, customers of a gotten organization may gain access to online or smartphone applications that their previous bank did not have the spending plan or tech talent to provide.

As for economies of scale, the purported strengths of the proposed merger are difficult to deny. It’s barely a stretch to think the acquirer might reasonably settle its information systems, personnels, marketing, public and investors relations departments into one head office – cost savings countless dollars at the same time.

In the Dodd-Frank Wall Street Reform environment, mergers likewise assists banks decrease the effect of increasing regulative and compliance obligations, which they blunt by spreading out costs.

Given this new ability to drive down the expense of funding, basic and administrative costs, takeover-minded banks have actually also gone on a public relations offending, promising future cost-savings to customers.

The prospect of a hot discount can dim over time

As in sports, some hit trades or acquisitions don’t work out even if they may look great on paper. Despite the best efforts and economic estimates of Wall Street experts, there’s constantly that incalculable and unforeseeable force called human nature.

A mishandled merger – no matter how well it pencils out – can torpedo a boatload of rosy numbers-driven projections. As an example, a study by the Deloitte Center for Banking Solutions discovered that 17 percent of bank consumers that’d been gotten switched over at least one of their accounts to another organization. The exact same survey disclosed that two-thirds of the customers who’d switched over doinged this in the first month after learning of the offer. That type of client disintermediation could mess up any forecasted cost savings by a recently merged entity.

Of course, customers are not always the first to run. Not able to deal with the culture clash and a brand-new set of business values, workers of the gotten organization regularly look for greener and calmer pastures. Many other workers just don’t figure in the merged bank’s new mathematics at all. The J.P Morgan Chase-Bank One merger in 2004 eliminated about 10,000 tasks.

In addition, some deals are pursued for all the wrong factors, consisting of feeding inflated business egos. For example, J.P. Morgan Chase paid a $7 billion premium to obtain Bank One in 2004. Since J.P. Morgan Chief Executive Officer William Harrison did not want to let Bank One Chief Executive Officer Jamie Dimon function as co-CEO in the new bank, Dimon squeezed another $7 billion from J.P. Morgan prior to agreeing to consummate the merger.

Another factor helping to drive meters is maturing management, as some Chief executive officers look to cash out huge prior to they retire. Data from investment banking company Sandler ‘O’Neill show that the average age of a bank Chief Executive Officer in 2014 is 59.6, up from 58.6 a year back and 55.2 in 2006. Right or wrong, graying bankers wish to make one last splash prior to exiting the phase, not exactly the best justification for taking a business down the merger path.

Ultimately, determining the result of another bank merger isn’t unlike a viewing a nine-inning baseball game or a 60-minute football video game unfold. It all boils down to execution and a couple of daring game calls by a brave, however forward-looking management team, which no script can anticipate with 100 percent accuracy. The result hangs in the balance till the final out is taped or the last second check off the clock.

That’s why they play the video game!