When Will Bank Mergers Return?

WASHINGTON, DC — The bank M&A market is currently in a deep chill, thanks to the Covid-19 pandemic.  It is unclear when deal activity will heat up, so who better to ask than Tom Michaud, the President & CEO, Keefe, Bruyette & Woods, A Stifel Company, as part of Bank Director’s new AOBA Summer Series.  In this one-on-one, I ask him about:

  • The banking industry’s second quarter results;
  • Why bank stocks have not participated in the overall market recovery;
  • The medium and long term implications of the pandemic on the industry;
  • The area of Fintech he thinks will be the hottest for the balance of 2020; and
  • How the November elections might impact the banking industry.

There are 10 videos in the AOBA Summer Series, with topics directed at C-suite executives or boards. We talk about how important scale has become, given compressing net interest margins, increasing efficiency ratios and climbing credit costs. We explore why banks’ technology strategy cannot be delegated. We observe why some banks will come out of this experience in a bigger, stronger position. And we look at leadership, appreciating that many executives are leading in new, more positive and impactful ways. To watch, click here.

Streaming Now: The AOBA Summer Series

Dreaming of a trip to Phoenix, and the Acquire or Be Acquired Conference, next January doesn’t seem so odd this summer.

WORKING FROM HOME — For decades, business leaders began to book their travel to the Arizona desert — for Bank Director’s Acquire or Be Acquired Conference — in early August. As evidenced by the nearly 1,400 at the Arizona Biltmore earlier this year, the annual event has become a true stomping ground for CEOs, executives and board members. Many laud it as the place to be for those that take the creation of franchise value seriously. I’ve even heard it referred to as the unofficial kickoff of banking’s new year.

Just seven months ago, Acquire or Be Acquired once again brought together industry leaders from across the United States to explore merger opportunities, acquisition trends and financial growth ideas.  With 418 banks represented, participants considered strategies specific to lending, deposit gathering and brand-building. They talked regulation, met with exceptional fintechs and networked with their peers under sunny skies.

Not one openly worried about a global pandemic.

Yet here we are, all of us dealing with fast-moving challenges and unimaginable risks.

So what can we do to help?

This is the question that proved the catalyst for our new AOBA Summer Series.  Indeed, we created this free, on-demand, compilation of thought leadership pieces to provide pragmatic information and real-world insight.

With CEOs and leadership teams being called upon to make decisions they have never been trained for, we realized the type of information typically shared in January has immediate merit this summer.  So instead of waiting until winter, this new Summer Series provides both color and context to the tough decisions — those with profound long-term consequences — that confront executives every day.

Ten videos comprise the AOBA Summer Series, with topics appropriate for the C-suite’s or board’s consideration.  Streaming on BankDirector.com, we talk about how important scale has become in the banking industry… how one’s technology strategy cannot be delegated… how it certainly seems that there will be banks that come out of this in a bigger, stronger state.  Here’s a screen-grab of what you’ll come across:

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In one-on-one conversations like these, we acknowledge how net interest margins are compressing — which will drive up efficiency ratios — and credit costs are climbing.  And we look at leadership, appreciating that many are leading in new, more positive and impactful ways.  In addition, this new series provides:

A SNAPSHOT ON CURRENT CONDITIONS
At our January Acquire or Be Acquired Conference, Tom Michaud, President & CEO, Keefe, Bruyette & Woods, A Stifel Company, provided his outlook for the industry. Now, we ask him to update his perspectives on M&A activity and share his take on the potential implications of the pandemic.  

HOW FINTECHS FIT
A growing number of technology companies have been founded to serve the banking industry.  Not all of them have what it takes to satisfy bankers.  During various sessions we learn how a variety of banks approach innovation — and the specific attributes a leadership team should look for in a new fintech relationship.

THE LEVERS OF VALUE CREATION
With nCino’s CMO, Jonathan Rowe, our Editor-in-Chief talks about the levers of creating value vis-a-vis the flywheel of banking. Together, they explain how certain technologies promote efficiency, which promotes prudence, thereby promoting profits, which can then be invested in technology, starting the cycle all over again.

Screen Shot 2020-08-12 at 5.21.46 PM

Hearing from investment bankers, attorneys, accountants, fintechs, investors and — yes, other bankers — about the outlook for growth and change in the industry proves a hallmark for Acquire or Be Acquired, be it in-person or online. 

As this new series makes clear, The future is being written in ways unimaginable just a few months ago.  We invite you to watch how industry leaders are making sense of the current chaos for free on BankDirector.com.

Three Observations from the Bank Board Growth & Innovation Conference

Select news and notes from the first day of Bank Director’s annual growth conference at the Ritz-Carlton New Orleans.

By Al Dominick // @aldominick

I mentioned this from the stage earlier today… every January, Bank Director hosts a huge event in Arizona focused on bank mergers and acquisitions.  Known as “AOBA,” our Acquire or Be Acquired conference has grown significantly over the years (this year, we welcomed some 800 to the desert).  After the banking M&A market tumbled to a 20-year low in 2009 of just 109 transactions, it has gradually recovered from the effects of the crisis. In fact, there were 288 bank and thrift deals last year, which was a considerable improvement on volume of 224 deals in 2013.  As our editorial team has noted, the buying and selling of banks has been the industry’s great game for the last couple of decades, but it’s a game that not all banks can — or want to — play.  Indeed, many bank CEOs have a preference to grow organically, and its to these growth efforts that we base today and tomorrow’s program.

Key Takeaway

To kick things off, we invited Fred Cannon, Executive Vice President & Director of Research at KBW, to share his thoughts on what constitutes franchise value. While he opened with a straight-forward equation to quantify franchise value over time — (ROE – Cost of Equity) × Market Premium — what really stuck with me during his presentation is the fact that a logo does not create franchise value, a brand does.  As he made clear, it is contextual (e.g. by industry’s served, technologies leveraged and clients maintained) and requires focus (e.g. you can’t be all things to all people).  Most notably, small and focused institutions trump small and complex ones.

Trending Topics

Anecdotally, the issues I took note of where, in no particular order:

  • Banks must be selective when integrating new technology into their systems.
  • The ability to analyze data proves fundamental to one’s ability to innovate.
  • When it comes to “data-driven decisions,” the proverbial life cycle can be thought of as (1) capture (2) store (3) analyze (4) act.
  • You don’t need a big deposit franchise to be a strong performing bank (for example, take a look at County Bancorp in Wisconsin)
  • We’ve heard this before, but size does matter… and as the size of bank’s balance sheet progresses to $10 billion, publicly traded banks generate stronger profitability and capture healthier valuations.

Picked Up Pieces

A really full day here in New Orleans, LA — with quite a few spirited discussions/debates.  Here are some of the more salient points I made note of throughout the day:

  • Selling services to large, highly regulated organization is a real challenge to many tech companies.
  • Shadow banking? Maybe its time I start calling them “Challenger banks.”
  • CB Insight’s has a blog called “unbundling the bank” — to understand the FinTech ecosystem, take a look at how they depict how “traditional banks are under attack from a number of emerging specialist startups.”
  • A few sidebar conversations about Wells Fargo’s incubator program, which the San Francisco bank began last August… interest in how the program involves direct investment in a select group of startups and six months of mentoring for their leaders.

To see what’s being written and said here in New Orleans, I invite you to follow @bankdirector, @aldominick + #BDGrow15.