Since founding Atlas Merchant Capital a decade ago, former Barclays boss Bob Diamond says he has never felt as bullish about the US banking market.
While Europe, where he also has investments, is slow, a new attitude towards banking regulation on the other side of the Atlantic is opening up a treasure trove of opportunities, particularly around bank mergers.
Already in September, there have been reports about Atlas — which Diamond set up with David Schamis, previously of private equity firm JC Flowers — being one of the investors helping to fund Central Pacific Financial Corporation’s takeover of Hawaiian rival American Savings Bank FSB. Diamond neither confirms nor denies their involvement.
This interview has been edited for clarity and brevity.
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Q: Where are the biggest opportunities in banking?
A: We think the single best investment in financial services, which is where we look, is US banks. And we have not felt that way since we formed Atlas Merchant Capital in 2013. It’s about the profound and strategic consolidation that’s going to happen in regional community banks.
This consolidation also means that the credit markets in the US will be severely impacted, because of the spin out of loan portfolios from banks being acquired, which will need to mark everything to market as part of the deal — something that banks do not otherwise do.
We put together a team of people that are very comfortable in the highly regulated area of US bank mergers. Many funds like ours will not invest in this, no matter how good the opportunity is, because of regulation — it’s either not their expertise or not worth their time.
Q: Where in particular in the US are you looking for these deals?
A: The US is a tale of two stories. Story one is: US banks provide an incredible service but we probably don’t need as many right now. For the smaller banks, the reaction to the failures of Silicon Valley Bank and First Republic in 2023 led to more technology, more costs.
There are strong banks in the $25bn to $50bn [worth of assets] area — well below $100bn, which is the next big trigger [in terms of regulatory requirements] — that could benefit from synergies because there are technology and regulatory costs that are duplicated on both sides.
If we can identify one or two really strong regional banks in that $25–50bn range, and invest — obviously, we would invest below 24.9 per cent which is what the rules are [to be considered a non-controlling investor] — we have investors that are very interested in doing that. Whether from a board position or an advisory position, we’d help guide the next stages of consolidation, where that bank can acquire other community banks.
Q: How do you view Europe, where you also have investments?
A: We have some really interesting investments in Europe, for example in London, where Panmure Gordon [the broker that Atlas Merchant Capital owns] merged with Liberum in 2024, or Kepler Cheuvreux in Paris, which specialises in research and trading.
Pre-Covid, we had as much activity in the UK and the rest of Europe as in the US. But since the pandemic, we haven’t had a new investment there.
Europe has been slow compared to the US.
Since the global financial crisis, the US attitude was to fix it for the good of the economy — no stigma. And the US banks’ recovery was unbelievable.
The attitude on the other side of the Atlantic, in continental Europe as well as the UK, was one of biblical justice, which is: “We’re mad at the banks; we’re going to penalise them.” And this happened at the expense of economic growth and job creation.
Some banks are really strong, like Santander, BNP Paribas, UBS — and what is happening with UniCredit, looking both domestically and cross-border for consolidation, is the right attitude. I’m seeing some real positives.
But we are very bearish on European banks compared to US banks.
Q: Do you expect any substantial change to US regulation in the short term?
A: We’ve been working on this [expecting a change in regulation] for a year. We think it’s profound. We think it’s very strategic. We think it’s necessary.
This would have happened if the Democrats had won the presidency too — but I think it will move more quickly under the Republican administration, because they are clearly less interested in adding regulation, less interested in preventing mergers.
Q: What types of risk worry you now?
A: The biggest cloud on the horizon I see is the debt level of developed economies, and it starts with the US — it now has $37tn in debt [$36.7tn as at the end of November according to official data].
When President Donald Trump was first inaugurated almost eight years ago, it was half that number. The following years were pretty good for the economy [although extra measures were required because of Covid], but debt levels have doubled.
The pressure on the government’s 10-year and 30-year notes is going to be chronic until there’s some kind of solution to the debt level.
