-
The company will soon exceed $50 billion in assets, which will bring with it added scrutiny and possible pressure to lower its dividend. CEO Joseph Ficalora is hopeful that he can preserve a high dividend, even though regulators appear to have a preference for repurchase activity.
May 5 -
They look great on paper, but mergers of equals are always difficult to integrate due to cultural issues. United Financial in Glastonbury, Conn., is learning that lesson with Jeff Sullivan's departure less than six weeks after the company's merger with Rockville Financial.
June 3 -
The Brooklyn company points to the recently announced merger of Rockville and United Financial in the New England, along with other deal, as evidence that similarly sized banks can reach agreement.
February 25 -
The emergence of several regional banks in California could prompt smaller institutions to weigh their M&A options. Higher operating costs and limited revenue opportunities could also force more consolidation in the state.
May 30 -
Bankers feel more optimistic about their business as crisis memories fade, and more open-minded about M&A as deal prices rise, but concerns about compliance challenges and regulators' tough reviews of merger applications are keeping their enthusiasm in check.
January 28
Merger momentum is finally building in the banking industry.
Banks announced 136 whole-bank deals in the first half of 2014, representing an 18% increase from a year earlier, according to SNL Financial. The aggregate value of those deals topped $6 billion, a 33% spike from the first six months of 2013.
Dealmakers
"M&A is getting back to a steady state like we had before the banking and real estate crisis," says Charles Crowley, a managing director at Boenning & Scattergood. "The activity is largely among the smaller banks and, for midsize community banks with a good currency, there are a lot of deals that make sense."
The banking industry is on
The research team at Raymond James calculated the number of announced deals as a percentage of total banks at the start of the year. At 4.03% annualized, activity at mid-2014 is the most robust since the rate was 4.61% in 1998, Rose says.
The second quarter was particularly strong. With 77 deals, it was the busiest quarter for M&A announcements in at least five years.
(Merger activity seemed to stall last year; deal activity at mid-2013 was flat compared to the first six months of 2012.)
Another encouraging sign in this year's data is pricing, which has started to improve.
Dealmakers were cautioning sellers a few years ago to temper expectations, warning that a two-times tangible book payday would be unlikely. The average deal in the second quarter was priced at 149% of the seller's tangible book value, up from 119% in the fourth quarter of last year.
Improved pricing largely reflects a stronger currency for buyers that can now pay more, industry observers say. And market continues to reward consolidators that execute on deals that promise value for shareholders, says David Olson, chief executive of River Branch Holdings, a Chicago investment bank.
Still, industry observers say they don't think prices will continue to build up too much in the near term.
"Pricing is directly dependent on the trading values of the buyers and the market valuations of the buyers remained consistent in the second quarter," says Bill Hickey, co-head of investment banking at Sandler O'Neill, which was involved in 28 deals through mid-2014. "That means pricing is not going to deviate from the last quarter pricing."
Hickey tempered his remarks by saying there could be some buyers who could pay up because they are quickly building capital or are getting anxious about growing their balance sheets.
Analysts at Raymond James also delivered a reality check in their recent note to clients.
"We continue to believe a return to the 'glory days' of management teams and boards of directors expecting more than three times book value for their franchises is unlikely to return in the short to intermediate term," they wrote.
Industry observers are also
Such deals
Mergers of equals are terrific in lower-price markets because companies can rationalize a lower premium by pairing with a like-sized company that is similarly situated. Such deals can be filled with upside potential as the companies cut expenses and benefit from economies of scale. But MOEs have lost their appeal as stock prices across the industry have risen.
"My candid view is that, as premiums continue to rise, it is harder to do lower-priced MOEs because the boards of either company wonder, 'Why are we exchanging our equity near market value when there might be a significant premium out there?'" Hickey says. "There was a more active MOE market when the premium deal wasn't out there."
"There were a lot of MOE deals and discussions, and it was a function of banks saying that they not only needed to get bigger, but they wanted to get bigger faster," Olson says. "With the ultimate takeout premium on the rise, the conversation is totally different."
Another game changer could be the return of bigger banks to M&A, industry observers say.
David Turner Jr., chief financial officer of Regions Financial (RF), said at a conference hosted by Morgan Stanley last month that the Birmingham, Ala., company was tentatively considering deals.
"We also are to the point where we want to start looking ... at opportunities to acquire complementary portfolios, nonbank businesses and starting to at least think about bank M&A," he said.
Similar conversations are happening behind closed doors, Olson says. "Some of the regionals are fairly aggressive in letting people know they are open for business," he says.
Banks like BB&T (BBT) in Winston-Salem, N.C., or New York Community Bancorp (NYCB)
The larger banks might be primping and preparing for M&A, but Hickey says he is skeptical about anything happening among the larger banks this year. "I think it is a 2015 event," he says.