2018 was generally a solid year for banks looking at merger and acquisition opportunities and reaching for the capital markets, but there are some headwinds in 2019 that give us pause about what the future holds. Below we count down our top five takeaways in 2018 and project what to expect in 2019.

5 Watch the Pocketbook

It’s been 10 years since the financial crisis, and banks are still feeling good about their credit and risk profiles. Banks were able to tap the equity and subordinated debt markets actively in the first three quarters of 2018, but the recent downward trend in stock prices has brought a renewed interest in an alternative method for enhancing shareholder value: robust stock repurchase programs. We predict that with the change in House leadership, the lessening impact of tax reform, the potential for rising interest rates and a slow cooling-off of prior robust economic growth, access to the capital markets will be more tepid in 2019, and banks will continue to be cautious about their capital resources.

4 M&A Takes a Breath

M&A activity continued to be robust in 2018, but the backtracking in financial stocks over the past few months may mean the industry is ready to take a breath and regroup. Last year saw significant tax reform and regulatory reform fueling a resurgence in bank stocks, but with new House leadership and with tax reform well behind us, M&A activity may take a pause. Will 2019 be the year of “mergers of equals”? The small Virginia Partners Bank and Delmar Bancorp combination announced in December may portend a revival of this oft-difficult-to-accomplish transaction as banks try to get bigger to compete without selling in their entirety.

3 The Ongoing Return of the De Novo

With the announcement in December from the FDIC about new efforts to foster a positive climate for de novos, a pipeline for new banks may slowly be opening. “A pipeline of new banks is critical to the long-term health of the industry and communities across the country. The application process should not be overly burdensome and should not deter prospective banks from applying. The FDIC wants to see more de novobanks, and we are hard at work to make this a reality,” said FDIC Chairman Jelena McWilliams. Although we are confident we will never return to the level of chartering activity that occurred prior to the financial crisis in 2008, we remain cautiously optimistic that the pace for new bank charters (which accelerated in 2018) will continue to improve, together with an occasional OCC “fintech” charter to boot.

2 What to Do With All That Green

The legalization of the marijuana industry in many states has increased the demand to find an acceptable financial solution to legitimately bank these profitable businesses. Lots of ideas continue to surface and be explored, including various bank partnerships and consortiums, use of public banks, and adoption of special protections to ensure comprehensive oversight and transparency of the industry. In December, California state senator Bob Herzberg reintroduced a bill to provide for the licensure and regulation of cannabis limited charter banks and credit unions for the purpose of providing banking services to cannabis businesses. We predict 2019 will represent a significant turning point in these efforts, with a new United States Attorney General and the federal government reviewing closely certain rules to enable the industry to be legitimately banked.

1 No More Regulatory Relief on the Way

With Rep. Maxine Waters heading up the House Banking Committee, don’t look for any significant legislative relief for banks, although President Trump’s appointees may try to accomplish through regulatory order what can’t be accomplished through Congress. Even Kathleen Kraninger, the new director of the Consumer Financial Protection Bureau, has implied she may be more aggressive than her predecessor on the regulatory front. With two years down and two more to go, watch for President Trump and his appointees in various agencies to look for opportunities to relax rules and regulations, which will play well in a re-election campaign.