But that doesn't mean that the financial services sector will be moribund when it comes to dealmaking, with more small bank consolidation still on the horizon. Plus, despite widespread retrenchments among Wall Street banks, opportunistic acquisitions in wealth management remain attractive, according to Eric Lohmeier a co-founder of midmarket investment bank NCP Inc. Morgan Stanley is finishing its $4.7 billion acquisition of the remaining 35% of its wealth management venture with Citigroup Inc. after winning Federal Reserve approval, and Lohmeier said healthy margins and an aging demographic made the sector attractive. "Banks are looking for stability in their revenues and wealth management has fairly decent profit margins," Lohmeier said. The banking sector has seen sparse merger activity since the credit crisis, with only nine deals since 2010 with a deal value greater than $1 billion according to Deutsche Bank AG. Among those deals were Capital One Financial Corp.'s 2011 acquisition of ING Direct USA for $9 billion and PNC Financial Services Group Inc.'s acquisition of RBC Bank for $3.45 billion that same year. Jeff Davis, the head of financial institutions group at consultancy Mercer LLC, said there was the distinct possibility of Wall Street banks breaking up their operations. "We've got an environment with a lot of pressure on margins and returns on equity with reduced trading volumes, where banks are handicapped by the Volcker Rule and management are taking a hard look at their operations," he said. "
Davis said plausible scenarios included Chase Bank being spun out of JPMorgan Chase & Co., a hive-off of the JPMorgan's credit card portfolio or a Citigroup breakup of its commercial banking from its global bank and markets operations.
Latham & Watkins LLP partner Stephen Wink said he had not come across any explicit reservations from regulators on major bank tie-ups. "But folks talk about the 'too big to fail' concept, with the idea that these banks are already too big," he said. Wink said merger activity among banks continued to be spotty, noting that the contrast between strong equity markets but still-soft economic data had made dealmakers cautious. Written by Jane Searle in New York