#FF with a dose of #FI

Sunset in Kona, HI
Three thoughts before the sun sets on the week…

Following the welcome of Pope Francis last week, I’m tempted to call this a slower news cycle and shorten today’s column from three points to two.  But as the sun sets on this week, who am I to short-change the spirit of this #FridayFollow-inspired post?  Especially as I heard/read/saw some pretty darn interesting things since last checking in!

  • Last week, I admitted to a bit of M&A “fatigue.”  Not so seven days later.  With the Koelmel announcement fresh in my head (it should be noted that he led the bank through a period of rapid growth beginning in ’05), I started to think about how history will judge their acquisition of HSBC’s entire upstate New York branch network.  At the time, some thought it would spark what is now a cliché: a “wave of bank consolidation.” So why think back when the purpose of this column is meant to be fresh?  From what I’ve heard (and read), branch acquisitions can present an attractive alternative to traditional M&A.  Case-in-point, a research report put out by Raymond James called Bank M&A: Activity Should Gain Steam in 2013.  While a few months old, their messages remain clear: with the “mega and super regional banks focused on expense control, many are taking a fresh look at reducing their branch networks. In turn, well positioned regional and community banks can look to branch acquisitions, which provide a low risk and cost-effective way to enter a new market or bolster an existing market.”  Not necessarily a new idea, but just as I gave props to Fred Cannon from KBW last week for perspectives like these, let me give a shout out to Anthony Polini and his equity research colleagues for consistently delivering valuable insight and information like this on a regular basis.
  • Turning from M&A to truly organic growth, I was really impressed with a piece Tom Bennett, the Chairman of the three-year old First Oklahoma Bank in Tulsa, Oklahoma, authored for BankDirector.com.  Tom’s piece, The Hidden Capital of Social Networks, introduces the idea of addressing “your equity capital needs and other performance items in your bank… (vis-a-vis) the social capital that exists in your investor group and how it can be utilized as a valuable source of strength.”  With so many CEOs and Chairmen of community banks hoping and wanting their outside directors to generate business for the bank, this piece is definitely worth a read.

Finally, a special thanks to @GilaMonster for providing her input on today’s post… I am very grateful.

Aloha Friday to all!

Follow Friday Fun

Well what do you know.  On Wednesday, D.C.’s “snowquester” came in like a lion and left, sadly, like a lamb.  So what do we have to hang our hat on this week?  Well, the Federal Reserve did release its stress test results for the country’s largest banks yesterday afternoon.  Interesting enough to make today’s week-in-review?  Take a read through these three stories that I read/watched/heard to find out.

Flying into Boston's Logan
An early approach into Boston’s Logan airport
  • While I wasn’t in my hometown of Boston, MA to hear this first hand, I have it on good authority that a number of the bankers presenting at KBW’s regional bank conference two weeks ago spoke on our country’s rapid move towards energy independence — and on the real economic growth they are seeing in their regions as a result.  If you’re interested, this equity research note (FSW Energy and the Regional Banks), authored by Keefe’s Fred Cannon, is definitely worth a read.
  • Juxtaposing energy needs with banking services reminded me of a “debate” between three bank analysts, including Fred, that centered on comparing banks to utility companies.  Building off those perspectives, I found myself talking with John Eggemeyer (the co-Founder & Managing Principal @ Castle Creek Capital) last Friday afternoon about this very thing.  While it didn’t make it into last week’s post, his hypothesis that the financial community bares all the characteristics of a mature industry sent me searching for white papers I worked on while in business school.  John saved me some of the trouble by reminding me that banking follows a historic pattern of other mature industries (e.g. dealing with excess capacity; which, as a consequence, leads to fierce competition for business).  My big takeaway from our conversation: price, not customer service, proves the ultimate differentiator. 
  • Finally, as John and I talked about what bankers might learn based on the commoditization of businesses, I couldn’t help but think about M&A and organic growth.   This leads me to my third point.  The Washington Business Journal recently recognized the top 5 D.C.-area banks based on total return on assets.  In the piece, authored by Bryant Ruiz Switzky, the area’s 37 local banks posted a median annual profit of $3.5 million in 2012. That’s up 44% from 2011.  Yes, many rankings like this focus on growth in terms of ROA; personally, I’m also keen to look at earnings growth.  Nonetheless, some strong banks on this list… with many more making some real strides here in our Nation’s Capital.

As a bonus, a tip of the cap to an American Banker piece on the hows and whys BankUnited’s private-equity backers are giving up a big chunk of their stakes in the $12.2 billion-asset bank.  While a subscription is required to read yesterday’s “BankUnited to Strengthen M&A Buying Power After Stock Offering,” I think its worth considering the short and longer-term views on what reduced private-equity interest might mean to a bank like this one.

Aloha Friday to all!