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The FDIC's point man on resolution planning says early submitters took the effort "seriously," but says process is still in early stages.
January 16 -
Federal Reserve Board Chairman Ben Bernanke said Wednesday that regulators are nearing completion of a contentious rule that will ban proprietary trading at U.S. firms.
December 12 -
KeyCorp's decision to sell Victory Management puzzled some, who asked why jettison a fee-based business and whether it might buy or sell some branches.
February 21 -
BankUnited looked like a seller last year, but a secondary offering of nearly 20 million shares will let PE profit and should arm BankUnited with a more valuable currency for buying banks.
March 6 -
Healthier sellers are searching for growth partners instead of saviors, and buyers seeking greater density in their current markets are ready to oblige.
February 27
Consolidation in the months ahead could reveal an industry suffering from an existential crisis, with banks of various sizes trying to find themselves.
That's the gist of a study published this week by global consulting firm Deloitte. The report, which explores what Deloitte views as the biggest issues for bank mergers, has a recurring theme — banks gaining clarity in a new regulatory and operating environment and deciding how to proceed.
"I think banks are trying to decide where they are going and who they are going to be," says Jason Langan, a co-author of the report and Deloitte's financial services M&A leader. "I think some are looking inward at what they are going to do now that we have a flavor of where things are headed."
Not surprisingly, the list begins with the economy and regulation. While the fragile economy is certainly not a new force in driving banks to explore deals, Deloitte says that additional problems in local governments could put more stress on community banking and could accelerate consolidation.
"The community banking environment is generally wobbly, at best," the report states. "Historically, these institutions have had a big role in building up their local economies, so questions about their viability are unsettling."
The impending implementation of the
Also, nonbank financial companies and private equity firms might be lining up to acquire ancillary businesses.
"Particularly appealing to private equity funds are investment management operations, which, in addition to being cash-rich from an earnings perspective, are not as capital-intensive or as regulated," the report says.
The overall M&A market is moving away from
"Cost rationalization may be a major focus for banks in 2013, as they seek to improve their efficiency ratio," the report states. "They also should remember that there are no sacred cows when returning to core business lines."
Expansion could include acquisitions of in-market competitors or banks in adjacent markets. It could also include buying branches from
With banks focused more on acquisitions involving healthier sellers, the Deloitte report notes that transaction multiples are starting to improve.
Still, sellers must be realistic about pricing. They should not expect multiples of a bygone era. Also, sellers should be willing to accept things such as earn-outs and holdbacks that add consideration based on future events, including better-than-expected loan performance.
"Sellers should identify a variety of alternative structures to meet increasingly discerning buyers in the middle," the report states.
Stock transactions, which give the seller some upside potential, are increasingly popular and putting an additional layer of focus on the
More capital could make "banks less risky and their earnings less volatile over time, which, in turn, could decrease the cost of capital," the report says. "A lower cost of capital could result in higher valuations."
The report states that banks might be focused on adding non-traditional and specialty lenders, such as
Aspiring buyers should act quickly. "When an asset-generator works well from a regulatory perspective and the yield is good, it tends to be snapped up," the report states.
The report banks to consider acquisitions from a reputational standpoint. "Banks should carefully analyze consumer-focused businesses, such as mortgage lending and servicing, and how they price services to the under-banked, to limit scrutiny by the" Consumer Financial Protection Bureau, the report says.
"Banks should consider 'kicking the tires' of current and prospective business lines more than they have done in the past to safeguard their brand," the report adds.