In the spirit of Twitter’s #FridayFollow, here are three stories related to the financial community that I read/watched/heard this week:
(#1) If you were at Bank Director’s 19th annual Acquire or Be Acquired conference last month, you heard that declining net interest margins, loan growth and regulatory challenges are the top concerns for banking leaders. In the following video, Grant Thornton’s Nichole Jordan discusses these concerns and provides insight into what bank executives and members of a board might do about them.
(#2) While I live in Washington D.C., our company considers Nashville home. In the shadows of Union Station, Avenue Bank maintains its oh-so-cool headquarters. I met with our “neighbor’s” President & COO yesterday afternoon and wound up talking about quite a few things. SEC sports, the upcoming Masters, branding (that’s their hummingbird below) and gasp(!), even a bit of banking.
When I asked if he’d read this cover story in Wednesday’s Wall Street Journal (“Business Loans Flood the Market“) about more banks competing for lending opportunities, he said he hadn’t. But, he did have good reason: he’d been talking about that very thing in Knoxville (at UT’s business school) the night before. While a subscription is required, the story lays out how banks are putting “their liquidity to work, but added competition puts pressure on rates and elevates risk.”
(#3) Finally, I receive a number of insightful research reports and newsletters. One of the better ones, IMHO, comes from Clark Street Capital. Each week, the Chicago-based firm shares its perspectives on banking, real estate, and the debt and loan sale markets. Worth a sign up.
As I head west (to Los Angeles for a few days of meetings), I started to re-read a few recent M&A outlooks for 2013. Admittedly, I have a pretty long collection of white papers, analyst reports and opinion pieces in my Dropbox thank to our recently wrapped up Acquire or Be Acquired conference. As I dig through the various projections, it strikes me that capital, liquidity and credit have improved at many U.S. banks since I rejoined the financial community in September of 2010.
Now, I draw no parallel to my return and this improvement — but do take comfort in hearing so many bank executives and board members voice more and more optimism about their months ahead. That said, when I look back at 2012, I think few would contest that it was a year plagued with limited loan growth & intense margin pressure.
I share this as I think about the factors that will spark more M&A deals in 2013 than 2012. Fortuitously for today’s piece, I have some “inside” knowledge to share. You see, with more than 700+ joining us at the Phoenician at the end of January, I had the chance to moderate a panel composed of two attorneys and two investment bankers. I asked each to take a stance — pro or con — on the following statements before opening things up to the audience (of bank CEOs, CFOs, Chairmen and board members from 275 community banks). What did we find?
68% responded that 2013 will be the best year for bank M&A since the financial crisis of 2008.
It was a near dead heat (52% taking the con) that pricing for a well performing bank less than $1 billion will not exceed 1.25X tangible book or less.
58% voted that the primary obstacle to doing a deal will be unrealistic price expectations of sellers.
60% voted that banks that are thinking of selling would be better off waiting until 2014 when valuations will be higher that they are likely to be in 2013.
Not surprisingly, a strong and vocal 72% disagreed with the idea that banks need to be a minimum of $1 billion in asset size to be competitive in today’s market. While certain economies of scale tip in favor of those above our industry’s magic number, I have to agree with the majority on this one. Yes, compliance costs continue to escalate — and regulatory burdens, well, don’t get me started…
For more on this three-day conference, I encourage you to read “A Postcard from AOBA 2013.” Penned by our editor, Jack Milligan, his gift with the written word writes circles around my amateur efforts.
So about the name of my new, banking-focused blog: it flies in the face of the so-called “Texas ratio” that originally inspired it. If you’re not familiar with this ratio, it measures a bank’s credit troubles. Simply put, the higher one’s Texas ratio, the more severe the bank’s credit troubles. According to the Dallas Fed:
Bankers, particularly those in Texas, cringe at any reference to the Texas ratio. Of all the metrics used in finance, the Texas ratio is among the most feared because it can be used as an early warning signal to identify financial institutions at greatest risk of failure…
By design, this site will explore issues and opportunities relevant to key leadership throughout our financial community. So, I felt the title fits with a wink and a nod to my focus and interests.
You see, I’m bullish on the future of banking. While some want to criticize and harp on things like a Texas ratio (which, truth be told, should be renamed to reflect recent challenges in Georgia or Florida), I’m keen to explore the many ways banks continue to support our neighborhoods and communities as they grow through acquisition or innovative new strategies and/or tactics.
Make no mistake: the risk & compliance sides of banking will take a secondary position to how banks deliver value to their customers, communities and shareholders. As I spend a lot of time talking with bank executives and board members + leaders at those companies providing services and support to FIs, I intend to pass along some of what I’m seeing, learning and thinking on a weekly basis. But for now, “ciao, ciao,” and thanks for checking out my latest writing venture!