Earlier this week, I shared my perspectives on bank M&A with the Wall Street Journal. What follows builds off the piece that ran in Tuesday’s print edition, highlighting key findings from Bank Director’s annual Bank M&A Survey.
By Al Dominick // @aldominick
At a time when J.P. Morgan is getting smaller, the pressure is on for smaller banks to get bigger. As KPMG recently shared with BankDirector.com, there was a 25% increase in bank deals in the U.S. in 2014, compared to 2013, and there is a good possibility that the number of deals in 2015 will exceed that of 2014. One reason for this: a larger institution can spread costs (such as investments and regulatory burdens) across a larger customer and revenue base.
Not surprisingly, 67% of executives and board members responding to Bank Director’s 2016 Bank M&A Survey say they see a need to gain more scale if they are going to be able to survive in a highly competitive industry going forward. As our director of research, Emily McCormick, shared, “many of these respondents (62%) also see a more favorable climate for bank deals, hinting at a more active market for 2016 as banks seek size and scale through strategies that combine organic growth with the acquisitions of smaller banks.”
While the majority of bank executives and boards surveyed feel a need to grow, respondents don’t agree on the size banks need to be in order to compete today. A slim majority, 32%, identified $1 billion in assets as the right size… interesting, but not surprising, when you consider that 89% of commercial banks and savings institutions are under $1 billion in assets, according to the FDIC (*personally, I’m of the opinion that $5Bn is the new $1Bn, but that’s a topic for another day). On to the key findings from this year’s research:
- Two-thirds report their bank intends to participate in some sort of acquisition over the next 12 months, whether it’s a healthy bank (51%), a branch (20%), a nondepository line of business (14%), a loan portfolio (6%) and/or a financial technology firm (a scant 2%).
- Respondents indicate that credit culture, at 32%, and retaining key talent that aligns with the buyer’s culture, at 31%, are the most difficult aspects of the post-merger integration process.
- More institutions are using social media channels to communicate with customers after the close of the deal. 55% of respondents who purchased a bank in 2014 or 2015 used social media, compared to 42% of 2011-2013 deals and just 14% of 2008-2010 deals (*FWIW, Facebook, at 26%, is the most popular channel for respondents).
- Fifty-six percent of respondents have walked away from a deal in the past three years. Of the respondents who indicate they declined to buy, 60% cite deal price while 46% blame the credit quality of the target institution.
- Why do banks sell? Of the executives and board members associated with banks sold from 2012 to 2015, 55% say they sold because shareholders wanted to cash out. Despite concerns that regulatory costs are causing banks to sell, just 27% cite this burden as a primary motivator.
The full survey results are now available online at BankDirector.com, and will be featured in the 1st quarter, 2016 issue of Bank Director magazine. In addition, for those executives interested in connecting with many of the key decision makers driving the deals mentioned above, our annual Acquire or Be Acquired Conference will be held at the Arizona Biltmore from January 31 through February 2.
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Our 2016 Bank M&A Survey, sponsored by Crowe Horwath LLP, examines current attitudes and challenges regarding bank M&A, and what drives banks to buy and sell. The survey was completed in September 2015 by 260 chief executive officers, independent directors and senior executives of U.S. banks, and former executives and directors of banks that have been acquired from 2012-2015.
About That Ratio 