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There were more deals announced in the Midwest than in any other U.S. region last year.
April 9 -
Most of us buy into the thinking that the slow pace of bank M&A is a bad thing. But, unless you are an investment banker or a lawyer who advises on deals, there are a lot of benefits to measured consolidation, some industry observers say.
June 12
For those who think the banking industry is on the verge of a new era of consolidation, Mitchell Feiger would tell you to reconsider.
"What we are seeing mostly in the M&A market … is pretty darn bad," Feiger, president and chief executive of $9.4 billion-asset MB Financial (MBFI) in Chicago, told analysts during an April 23 conference call.
"That is not to say there aren't some companies out there that we would be very, very interested in," Feiger said. "It is just that they are very few and they almost never come to market."
Feiger has sympathizers. During the recent round of first-quarter earnings conference calls, numerous bank chiefs threw a bucket of cold water on investors' and investment bankers' high hopes for dealmaking in 2013.
"We haven't really bought anything for the last two years … [and I don't expect] there will be anything exciting that we may need to preserve capital to be deployed for some major acquisition," Dominic Ng, chairman and chief executive of East West Bancorp (EWBC) in Pasadena, Calif., said during an April 18 call.
Feiger, in a follow-up interview with American Banker, bluntly assessed the field of community banks that MB Financial might consider targets.
"The kinds of loans most small banks have on their balance sheets are small commercial real estate loans," he says. "That's the kind of assets most midsize banks have generally been shedding."
Further, these small banks have limited ability to do much outside CRE lending, Feiger says.
"Those are just the kinds of loans they originate," Feiger says. "They don't bring a valuable asset-origination platform."
Richard Davis, the chairman and CEO of U.S. Bancorp (USB) in Minneapolis, thinks "most companies are going to … stick to their knitting, be very cautious and be proud of the fact that they're still being profitable."
Ditto from Ralph Babb, chairman and CEO of Comerica (CMA) in Dallas.
"People are focusing on being conservative at [this] time until they get a better feel for where they can go from a leverage standpoint," Babb said.
In a discussion with BB&T (BBT) on how the Winston-Salem, N.C., company will use its capital, Credit Suisse analyst Craig Siegenthaler asked if BB&T's priorities, in order, were dividends, then stock repurchases, then acquisitions.
"That would be absolutely right," Kelly King, its chairman and CEO, said.
A few analysts took a stab at changing the mind of these bankers. Some tossed out the perceived benefits of Provident New York Bancorp's (PBNY)
"We saw two New York franchises get together, a merger of equals realizing cost savings," Matthew Breese, an analyst with Sterne Agee, said during OceanFirst Financial's (OCFC) earnings call. "Both were under a lot of the pressures you guys are feeling as well. Would you guys ever consider a maneuver like that, given the economic outlook we are in?"
John Garbarino, chairman and chief executive of the $2.3 billion-asset OceanFirst in Toms River, N.J., wouldn't take the bait.
"The Provident-Sterling deal that you refer to," Garbarino responded, "is certainly an interesting exercise and it's interesting to take a look at and I wish them a lot of success."
Part of the problem is that potential sellers are still not satisfied that they would receive a price to their liking, Ed Wehmer, president and chief executive of $17.1 billion-asset Wintrust Financial (WTFC) in Rosemont, Ill., said during an April 18 earnings call.
"They'd like to get close to book value if they could," Wehmer said. "If they can get away with that, they'd like to get out of this goofy business and move on, because as they all tell you, they're just really tired."
However, "it's taking longer for these guys to kind of work out of their issues," Wehmer said. "Their core earnings aren't growing like they would like, because they can't lend the money. They have too much real estate already, or too much something. And it's taking them longer to earn out of their situation."
MB Financial's Feiger acknowledged that he might have gotten spoiled during the period of bank failures; MB Financial acquired six banks since 2009 through loss-sharing agreements with the Federal Deposit Insurance Corp.
The bank failure era did not clear out all the problem banks, Feiger says. Some of those institutions may never rebound, even after the economy recovers. These banks will never hold appeal as an acquisition target, he says.
"The value of some small banks is probably permanently impaired," Feiger says. "Even when rates go up, a lot of the deposit bases are unattractive because they're CD-dominated and the asset side consists primarily of small CRE loans."
