A Complete Guide to Bank Director’s Audit & Risk Committees Conference

Whether it is a complex product, new service or emerging line of business, this year’s Bank Audit & Risk Committees Conference examines the many issues and opportunities being faced in boardrooms at financial institutions of all sizes across the country.

By Al Dominick // @aldominick

While much has been written about how and where banks might grow, with new opportunities come new challenges.  With our industry undergoing significant change, boards must be highly informed in order to proactively oversee the management of security risks, compliance challenges and reputational issues.  At this year’s Bank Audit & Risk Committees Conference, we focus in on key accounting, risk and regulatory issues that challenge bankers and board members alike.  Today’s column tees up this year’s program, one that opens on Wednesday at the JW Marriott in Chicago, IL.

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Wednesday, June 10

Before the curtains officially come up, we offer a series of pre-conference programs; most notably, a series of peer exchanges exclusive to a bank’s audit and risk committee chairs.  Modeled upon our annual Bank Chairman/CEO Peer Exchange, small groups of directors meet in closed door, off-the-record peer exchanges for candid discussions about various hot topics.  In addition, we have added a cyber security workshop that allows attendees to play out various scenarios that involve a hack, breach or attack.  Finally, we offer a primer for newer audit and risk committee members and chairs that provides a framework for both roles and responsibilities.

Thursday, June 11

According to several bankers I have recently talked to, this has become a must-attend event for audit committee members, audit committee chairs, CEOs, CFOs, presidents, corporate secretaries, internal auditors, chief risk managers and other senior executives who works closely with the audit and/or risk committee.  This year, we cover pertinent issues such as enterprise risk management, fraud, relations with internal and external auditors, audit committee oversight and regulatory changes for banks.  It is this ability to focus in on critical concerns and complex scenarios to a very specific group of officers and directors that sets us apart from others.  At a time when audit and risk committee members are being asked to take on more responsibilities and perform at higher levels than ever before, the presentations made on day one are laser-focused on key financial, risk management and regulatory issues.

Friday, June 12

A significant imperative for members of a bank’s board today?  Fully integrate risk management, compliance and ethics “that fit” into a particular bank’s culture.  On day two, we look at how this might be done while addressing many other challenges.  Indeed, some of the key risks facing banks today (that regulators expect boards and senior managers to address) include:

  • Strategic risk as banks adapt business models to respond to the current economic and competitive landscapes;
  • Management succession and retention of key staff;
  • Loosening loan underwriting standards;
  • Expansion into new products and services;
  • Exposure to interest rate risk;
  • Oversight of third party service providers;
  • Increased volume and sophistication of cyber threats;
  • BSA/AML risk from higher-risk services and customer relationships; and
  • Maintaining effective compliance management systems.

The presenters at this event are some of the leading experts in accounting, legal, consulting and regulatory areas, as well as experienced bank officers and directors.  From Sullivan & Cromwell to KPMG, Arnold & Porter to Crowe, Latham & Watkins to FIS, we are pleased to bring some of the industry’s foremost advisors together in Chicago.

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To follow the conversation via Twitter, check out #BDAUDIT15, @bankdirector and @aldominick.

Seeking Size and Scale

With Wednesday’s announcement that BB&T has a deal in place to acquire Susquehanna Bancshares in a $2.5 billion deal, I felt inspired to focus on the mergers & acquisitions space today.  You see, if 2013 was the year of the merger-of-equals (MOEs), it seems that 2014 has become the year of “seeking size and scale.”

As I’ve shared in past posts, 2013 was characterized by a series of well-structured mergers which produced a dramatic improvement in shareholder reaction to bank M&A.  For example, Umpqua & Sterling,  United Financial Bancorp & Rockville Financial and Bank of Houston & Independent Bank.  Over the past few weeks, we’ve seen some pretty interesting transactions announced that are not MOEs; specifically, Sterling Bancorp buying Hudson Valley Holding in New York, Banner picking up AmericanWest Bank in the Pacific Northwest and the afore-mentioned BB&T deal.

Don’t Be Fooled, Size Matters

As evidenced by the Sterling and Banner acquisitions, the desire for scale and efficiencies is prompting certain institutions to expand.  While regulatory costs and concerns have been cited in previous years as deterents to a transaction, isn’t it interesting that both of these deals position the acquiring institution near the $10Bn threshold (*important as crossing this asset threshold invites new levels of scrutiny and expense).  But like John Thain suggested earlier this year, “the key is being big enough so that you can support all of the costs of regulation.”  Still, comments made by Richard Davis, chairman and chief executive of U.S. Bancorp, about the BB&T agreement should temper some enthusiasm about the biggest players jumping in to the M&A space a la the $185 Bn-in-size BB&T. “This is not a deal you’d ever see us do,” he said at conference in New York hosted by Bank of America Merrill Lynch, adding “it’s both out-of-market and it’s fairly expensive.”

I’m Serious, It Matters?!?

Earlier this year, Deloitte published The Top Ten Issues for Bank M&A.  In light of the BB&T deal, it is worth revisiting.  To open, the authors opine “size matters when it comes to regulatory constraints on the banking sector: The bigger the players, the more restrictions on banking activities, including M&A. Banks with less than $10 billion in total assets face the least restriction, while the very largest Systemically Important Financial Institutions (SIFIs) experience the highest level of constraints. Among the major regulatory actions that are expected to hold considerable sway over bank M&A in 2014 are the Volcker Rule, Basel III capital requirements, global liquidity rules, stress testing, and anti-money laundering (AML) and Bank Secrecy Act (BSA) compliance laws.”

Who I’m Taking to Buy a Lottery Ticket

Finally, a tip of the hat to Frank Cicero, the Global Head of Financial Institutions Group at
Jefferies. He reminded me on Wednesday that every prediction he made in a piece he wrote for BankDirector.com at the beginning of the year has come to pass…fewer MOE’s, bigger premiums, regional banks returning to bank M&A.  Personally, I’m wondering if he wants to walk into the lotto store with me this weekend?

Aloha Friday!

Bank Mergers and Acquisitions

Before I head out to California to speak at Moss Adams’ annual Community Banking conference, a look at the principal growth strategy for banks: mergers and acquisitions.

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Over the last few years, bank advisers have made the case that consolidation should increase due to significant regulatory burdens, lack of growth in existing markets and aging boards and management teams that are “fatigued” and ready to exit our industry.  So as I see prices to acquire a bank on the rise, it is interesting to note that demand for a deal hasn’t slowed.  According to Raymond James, there were 136 acquisitions announced in the 1st half of the year versus 115 announced in the first half of 2013.  Moreover, total deal value is reported at $6.1 billion versus $4.6 billion in the first half of 2013.

Taking this a step further… While activity in the first quarter of 2014 was only slightly ahead of prior years, the second quarter saw a dramatic increase — 74 deals were announced, which is the highest of any quarter since the credit crisis of 2008.  According to this piece by Crowe Horwath (Will 2014 Be the Year of M&A?), annualized, the total number of announced transactions will exceed 260, which is on par with many of the pre-crisis years of the 2000s.

When is a “Deal Done Right?”

As competition to acquire attractive banks increases, so too does the short and long-term risks incurred by the board of an acquiring institution to find the right fits.  In many ways, the answer to “what makes a good buy” depends on the acquiring board’s intent.  For those looking to consolidate operations, efficiencies should provide immediate benefit and remain sustainable over time.  If the transaction dilutes tangible book value, investors expect that earn back within three to five years. However, some boards may want to transform their business (for instance, a private bank selling to a public bank) and those boards should consider more than just the immediate liquidity afforded shareholders and consider certain cultural issues that might swing a deal from OK to excellent.

My Thoughts on CIT’s Acquisition of OneWest

No two deals are alike — and as the structure of certain deals becomes more complex, bank executives and boards need to prepare for the unexpected.  The sharply increased cost of regulatory compliance might lead some to seek a buyer; others will respond by trying to get bigger through acquisitions so they can spread the costs over a wider base. So as I consider this summer’s CIT deal for OneWest, I see a real shift happening in the environment for M&A.  I see larger regional banks becoming more active in traditional bank M&A following successful rounds of regulatory stress testing and capital reviews.  Also, it appears that buyers are increasingly eyeing deposits, not just assets.  This may be to prepare for an increase in loan demand and a need to position themselves for rising interest rates.

A “Delay of Game” Warning

While M&A activity levels are picking up in the bank space, the amount of time from announcement of acquisition to the closing of the deal has widened significantly in some cases.  As noted by Raymond James earlier this week, “this has been particularly notable for acquirers with assets greater than $10 billion where there have been notable delays in several instances given the greater regulatory scrutiny for banks above this threshold. M&T’s pending acquisition of Hudson City was originally expected to close in 2Q13, and through August 18, 2014, was 722 days from the original announcement on August 27, 2012. This case stands out as a prime example of issues surrounding Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance. A more recent example is the delay in the expected closing of BancorpSouth’s two pending acquisitions (Ouachita Bancshares and Central Community Corporation) that have both been pushed out due to similar issues.”

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When it comes to bank M&A, I sometimes feel like everyone has an opinion.  I’d be interested in your thoughts and welcome your feedback.  To leave a comment on this post, simply click on the white plus sign (within the grey circle at the bottom of this page).  I invite you to follow me on Twitter (@aldominick) where you can publicly or privately share your thoughts with me too.

Aloha Friday!