10 Jun Invictus Bank Insights – May 2019
By Kamal Mustafa, Invictus Group Chairman
Community bank stock prices are down, and M&A transactions have dwindled, a reality that is troubling on many different levels.
The drop in bank stock prices and the corresponding decline in valuation of private banks has created an insular, fairly disturbing and increasingly shortsighted climate for both sellers and buyers. Buyers feel that their currency is too undervalued to use for acquisitions, while sellers believe that their values are too depressed to consider selling. As a result, even though the need for M&A has never been greater and the timing has never been better, community bank M&A transactions are few and far between.
By Leonard J. DeRoma, Head of Liability Analytics
Virtually any financial institution with a high loan-to-deposit ratio or with funding challenges in today’s difficult and highly competitive environment for gathering and retaining deposits should at least explore M&A as a potential solution. The right acquisition can, overnight, provide the same amount of liquidity your bank can generate on its own over the next five years. However, pursuing acquisitions as a solution to the deposit dilemma must be done with diligent planning and a carefully developed process.
The Federal Reserve issued a proposal in April that eases some rules for investors, while providing more clarity on the factors and thresholds it uses to determine if a company has a controlling interest in a bank. Those include total equity and voting stock investments, as well as the scope of business relationships between the company and the bank. The proposed rulemaking would permit an investor to have a greater number of director representatives at the target company without triggering a presumption of control, a change from past practice.