In just 20 days, we raise the lights on our 23rd annual Acquire or Be Acquired Conference. This is Bank Director’s biggest event of the year, one primarily focused on banking’s “great game” — mergers and acquisitions. My team has spent considerable time and energy developing a spectacular event focused on growth-related topics that range from exploring a merger to preparing for an acquisition; growing loans to capturing efficiencies; managing capital to partnering with fintech companies. To see the full agenda, click here.
Widely regarded as one of the banking industry’s premier events, we have more than 1,000 people registered to attend AOBA later this month — an all-time high. We couldn’t do this alone, and over the course of these 2 ½ days, executives from many of our industry’s leading professional services firms and product companies share their perspectives on “what’s now” and “what’s next.” I invite you to take a look at all of the corporate sponsors joining us:
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.”
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.
It’s been a while since I last called Dallas home; still, the white shirts & gray shorts of St. Mark’s proved a welcome and familiar site during a trip to the Texas city earlier this week. A flashback to my freshman year of high school? Absolutely. Dare I reminisce before diving into today’s post with a few random fun facts. Heck yeah. Did you know Dallas lies in a large prairie running through the center of the United States? Ok, anyone who has visited know it is fairly flat… but did you know it is one of the largest cities in the world not located on a navigable river? Yes, this is a city where I learned about Coke floats, Suburbans and sayings like “if I say a hen dips Skoal, you can look under her wing for the can.” Curious how I’m going to relate my time in Big D to the banking space? Read on.
What Happened to Citi’s Hutzpah?
Even with wifi-enabled planes, I still find travel by air the best way to work uninterrupted. The luxury of my iPhone laying silent this week? A chance to catch up on various blogs and articles like those authored by Jack Milligan. The editor of Bank Director magazine, he took a look at how large U.S. banks, specifically Citigroup, are being dogged by intense regulatory scrutiny and have the challenge of preparing for much stricter capital standards in coming years. By noting Citigroup was the only bank of the six largest U.S. banks to flunk the latest round of stress tests, he sets up his must-read “Where Has the Go-Go Bank Gone?” In his view, cutting expenses and selling off non-core business units doesn’t seem like a bold enough plan for the behemoth. Per Jack, “maybe what this Citi needs is a little of the old Citi’s hutzpah.”
Pay Attention to Your Sales Process
On Wednesday, I made it to Preston Road and St. Mark’s School of Texas for a few minutes in large part because of Ignite Sales (the company’s offices are a few miles away from the all-boy school where my parents enrolled my brother and me when my father took a job with the then-6th largest bank in the country, Bank One). As I talked with Ignite’s CEO, Mitchell Orlowsky, he made clear that non-bank competitors are eating away at banks’ customer base, in part because banks have paid little attention to the sales process. As he shared earlier this month, “banking has never had to focus on a comprehensive sales process. Because of healthy margins from loans and fees, banks have historically shied away from proven sales methods found in other industries. However, now that the market has become competitive, the lack of sales infrastructure hurts.”
A Silver Lining
Mitchell shared how more progressive banks have begun to hire experienced sales management from other industries that bring the expertise needed to change this culture. I thought about this approach as I dug into a Raymond James report on the outlook for the spring (“Banking Industry Overview“) on my flight home to D.C. In their view, first quarter 2014 results are “likely be highlighted by continued improvement in credit quality, a pickup in commercial loan growth, net interest margin (NIM) stabilization, and improved profitability. However, these positives will likely be mitigated by weak year-over-year comparisons for market-related revenue, sluggish balance sheet growth, and a continued decline in mortgage banking activity.” Of particular note: they expect the M&A discussion to gain prominence given the pickup in deal activity and “outperformanceof stronger acquirers who have recently announced transactions” along with the following catalysts:
The modest pace of economic recovery
Protracted low rate environment
Higher capital requirements
Aging management teams/boards
I continue to hear that M&A activity will remain largely relegated to smaller deals for banks with assets of $1 billion or less — and this report certainly reinforced this view.
A few weeks ago, to begin “The Innovator’s Dilemma,” I shared the need for banks to think differently or risk becoming obsolete. This morning’s column builds on that idea by looking at some of the characteristics of top performing publicly held banks based on a research piece shared by Raymond James. I studied this list and realized quite a few of the “winners” leverage design trends, the second point in today’s post, to differentiate their messaging. My third and final point looks at technology expertise making its way into a bank’s boardroom — and provides an excuse to post a number of pictures from my time in Nashville last week.
Top of the (Performance) Pack
Recently, Raymond James presented its second annual Community Bankers Cup. This “award” recognizes the top 10% of community banks based on various profitability, operational efficiency and balance sheet metrics culled from a pool of 302 publicly traded community banks with assets between $500 million and $10 billion. What we see in the firm’s recap is superior financial accomplishment drives superior stock price returns. These 30 banks (e.g. Eagle Bancorp, First Financial, etc.) demonstrated exceptional results “on a relative basis in one or more of the following measurements of financial performance and stability: non-performing assets to loans and real estate owned, five-year average core deposit percentage, net interest margin, efficiency ratio, return on average assets, and return on average tangible common equity.” If you are looking for examples of strong + healthy banks that have taken creative ideas to build a business, and subsequently monetized them, take a look at what the Raymond James team writes about these 30 institutions.
Ahead of the Curve
Since the beginning of the most recent global financial crisis in 2008, Getty Images has been tracking the changes in imagery used by financial services providers to represent their brand. In their words, “gone are the depictions of aspiration and conspicuous wealth as financial services brands try to re-establish trust with their customers.” In their place comes creative uses of community support “set-up for the long-term to demonstrate their responsibility for local businesses, communities and the environment.” Take a look at this “visual trends in financial services marketing” to get a truer sense of what’s working for bank marketers today.
Last week, our team welcomed 117 bank officers and directors to the Hermitage in Nashville. At this spectacularly Southern hotel, we went a bit old school and put pen + paper in front of these decision makers to ask five technology-specific questions. I don’t normally equate technical proficiency with a bank’s officers and directors; however, the vast majority of attendees shared that their executive team has at least two people with strong technology understanding/experience. While a small sample size, more then 50% of these key leaders responded to our query… and the results underscore, in my opinion, the importance being placed on technology at community banks. In addition, I did hear from several Chairmen that they are adding outside directors with an understanding of issues like cyber security risk and how to oversee vendor management. If you’re interested to see what an event looks like from my POV, here’s a look (photos courtesy of Don Wright Designs & Photography)
Lucky to share the stage w/ Jack
Jack Milligan – our editor + the force behind this event
A look into the Hermitage’s Grand Ballroom
The Veranda – set for lunch
The lobby – during a rate quiet moment
A spectacularly Southern hotel
Getting things going
A peek out from the stage #IThoughtToTakeASelfie
Jack working the crowd
a sneak peek from behind the stage
Amanda, our new Director of Conferences (hired @ the Hermitage)
Winston Churchill once said, “a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” I believe we all aspire to see the proverbial glass as half full — so this quote is one I thought to share as we wrap up this Thanksgiving week. As I do each Friday, what follows are three things I’m thinking about; in this case, what I’m grateful for — in a professional sense — that reflects Churchill’s sentiment.
(1) The Harvard Business Review ran a piece this April entitled Three Rules for Making a Company Truly Great. It began “much of the strategy and management advice that business leaders turn to is unreliable or impractical. That’s because those who would guide us underestimate the power of chance.” Here, I want to pause and give thanks to my tremendous colleagues at Bank Director — dreamers and implementors alike — who prove that fortune really does favor the prepared mind (and team).
Al, Mika, Joan + Bill in Jackson, WY
Team pix at the Ritz-Carlton New Orleans
Makin’ it rain with our editor, Jack Milligan
The Arizona Biltmore, home of 2014’s Acquire or Be Acquired conference
Surprised (pleasantly) by our team with this video in Times Square
Michelle, me, Naomi and Laura at the Ritz-Carlton
Bailing out the car in South Central LA
Take a stance fellas
The JackAl in action
Some of our team celebrating 3 years
Closing bell at the NASDAQ MarketSite
(2) I believe that leadership is a choice and not a position. As a small company with big ambitions, I find that setting specific directions — but not methods — motivates our team to perform at a high level and provide outstanding support and service to our clients. This parallels the principle value of McKinsey & Co., one eloquent in its simplicity: “we believe we will be successful if our clients are successful.” I read this statement a number of years ago, and its stuck with me ever since. As proud as I am for our company’s growth, we owe so much to the trust placed in us by nearly 100 companies and countless banks. Personally, I am in debt to many executives for accelerating my understanding of issues and ideas that would take years to accumulate in isolation. Since returning to Bank Director three years ago, I have been privileged to share time with executives from standout professional services firms like KBW, Sandler O’Neill, Raymond James, PwC, KPMG, Crowe, Grant Thornton, Davis Polk, Covington, Fiserv… and the list goes on and on. These are all great companies that support financial institutions in significant ways. Spending time with executives within these firms affords me a great chance to hear what’s trending, where challenges may arise and opportunities they anticipate for their clients. As such, I am thankful to be in a position where no two days are the same — and my chance to learn never expires.
(3) Finally, I so appreciate the support that I receive from my constituents throughout our industry. It might be an unexpected compliment from a conference attendee, a handwritten thank you note from a speaker or the invitation to share my perspectives with another media outlet. Regardless of how it takes shape, let me pay forward this feeling by thanking our newest hires, Emily Korab, Taylor Spruell and Dawn Walker, for expressing an interest in the team we’ve assembled and goals we’ve set. Taking the leap to join a company of 17 strong might scare some towards larger organizations, but I’m really excited to work with all three and expect great things from each.
A late Happy Thanksgiving and of course, Aloha Friday!
As we wind down the dog days of summer, I re-read my last eight posts before outlining this week’s piece. By design, I placed a heavier emphasis on stories that related to building customer relationships and opportunities tied to organic growth rather than multi-national issues and regulatory reform. To build off these ideas, I thought to share three pieces that address “what’s next” in the United States and Europe. The first focuses on potential changes overseas; the second, on domestic mergers and acquisitions; to close, I share the thoughts of Wells Fargo’s CEO on the importance of community banks.
(1) “What’s next for the restructuring of Europe’s banks,” a question that parallels many conversations taking place within boardrooms, think tanks, government offices and media rooms across the U.S. Penned by members of the financial services team at McKinsey, this op-ed shows how Europe’s banks, like their U.S. counterparts, have had to re-evaluate their short and long-term prospects based on stagnant economic conditions. Many “continue to face pressure from difficult funding conditions, a transition to higher costs of capital, changing regulations and tighter capital requirements.” The authors make a case that many “need to shed capital-intensive operations and simplify businesses to compete more profitably in fewer market segments.” All told, this report claims Europe’s banks are “considering the sale of up to 725 business lines across various business segments and geographies.” If true, this might result in greater numbers of strategic mergers of like-sized banks. Do you agree that this story sounds eerily familiar to the one playing out here in the States?
(2) Staying closer to home, bankers and advisers alike debate how quickly consolidation will play out in the coming years. Personally, I see it taking place over a longer period than some might forecast. To this point, I think I have a friend in Raymond James’Anthony Polini (their Managing Director of Equity Research). Anthony shared his perspectives with an audience of CEOs, Chairmen and board members at Bank Director’s Acquire or Be Acquired conference this January. There, he opined that industry consolidation “is inevitable” as banks come to grips with new regulations, lower growth rates, higher capital/reserve requirements and lower long-term margins/returns.
Earlier this week, he penned a mid-year report that builds on those ideas. He lays out how “the current slow growth environment fosters M&A as a quicker means for balance sheet growth and to achieve operating efficiencies in this revenue-challenged environment.” In his team’s estimation, meaningful industry consolidation takes place over the next 5 to 10 years rather than a large wave that occurs over just a few. This belies his belief that banks are “sold and not bought.”
Using this logic, coupled with an improving (albeit slowly) economy, modestly better asset quality and shades of loan growth, he believes “an M&A target’s view of franchise value will remain above that of potential acquirers. Put another way… expect the disconnect between buyers’ and sellers’ expectations to remain wide but slowly move closer to equilibrium over time.”
“…we need well-managed, well-regulated banks of all sizes—large and small—to meet our nation’s diverse financial needs, and we need public policies that don’t unintentionally damage the very financial ecosystem they should keep healthy. “
He continues that “almost 95% of all U.S. banks are community banks. They provide nearly half of all small loans to U.S. businesses and farms. In one out of five U.S. counties, community banks are the only banking option for local residents and businesses. Many small towns… would have little access to banks, and the services they provide, without our system of community banks.” Significant words from one of banking’s biggest voices. Not the first time he’s shared this opinion, and hopefully, not the last.
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.