Magazine article American Banker

Smaller Banks Form M&A Advisory Units to Add Revenue

Magazine article American Banker

Smaller Banks Form M&A Advisory Units to Add Revenue

Article excerpt

Byline: Jackie Stewart

Lots of banks are feeling their commercial customers' pain, and some are finding a way to capitalize on it.

Like banks, businesses in other sectors are finding revenue growth hard to come by and are considering acquisitions.

As a result some regional banks have expanded, and some small banks have started, investment banking services to help commercial customers sell their business or buy other firms. Long seen as a niche primarily for banking's biggest players, i-banking can help these banks distinguish themselves from their competitors, deepen customer relationships and boost fee income.

"It is increasingly difficult for banks to make money, and this is a way to drive some fee income without deploying capital," said Terry Keating, a former managing director at the investment banking firm Amherst Partners and now an executive vice president at the commercial financier Accord Financial.

Many business owners are disappointed about the weak economic recovery, Christopher Gorman, the president and chief executive of KeyCorp's corporate bank unit, said during the company's second-quarter earnings call with analysts.

KeyCorp's M&A fees rose 134% year over year, he said, and the Cleveland company recently announced that it would buy the technology investment banking firm Pacific Crest Securities.

"You have a situation where [business] people are sitting on a lot of cash," Gorman said. "There's not a lot of growth to be had and so people are looking to grow strategically."

Even tiny banks are pursuing a piece of the action.

The $294 million-asset Freedom Bank of Virginia in Vienna launched FBV Capital Advisors in February with plans to work with smaller government contractors looking to sell. Less money has flowed to these smaller firms in recent years as the government has bundled more of its contracts.

It made sense for Freedom to offer M&A advisory, even if many owners won't decide to sell for years, President and CEO Craig Underhill said. These businesses will need other banking services in the meantime, and eventually the advisory unit could boost noninterest income at the bank.

"We felt like this was a service that our clients could use, and we could make some money for them on the way out," Underhill said. "We think this will help bring people in who aren't thinking of selling immediately but it is a differentiator for the relationship."

Providing additional services to commercial customers, such as cybersecurity compliance and business seminars, is seen as a way to stand out as other banking services have become more commoditized.

Expanding into investment banking activities is an extension of that philosophy. There is also a fear that banks could lose out on wealth management revenue if business owners get help with a sale somewhere else and then entrust managing their windfall to that new firm, Keating said. …

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