In Banking Industry, More Consolidations Are Expected

By Hielscher, John | Sarasota Herald Tribune, July 14, 2014 | Go to article overview

In Banking Industry, More Consolidations Are Expected


Hielscher, John, Sarasota Herald Tribune


Deal-making in the banking industry is shaping up to be the most active in six years.

As of midyear, 136 mergers and acquisitions have been announced, 21 more than at the same point last year, says analyst Michael Rose and others at Raymond James in St. Petersburg.

The total value of deals is $6.1 billion so far this year, up from $4.6 billion last year. M&As have involved an annualized 4.03 percent of all institutions, outpacing last year's 3.64 percent and approaching the high of 4.61 percent in 1998, the analysts said in a midyear report.

Prices paid by buyers also is increasing, with a 1.49 times price- to-tangible book value in the second quarter, up from the bottom of 1.01 times book in early 2009.

"While this expansion is partly a function of where bank stocks are trading, it also reflects greater comfort with balance sheets coming out of the credit cycle, which has resulted in a narrowing of the disconnect between buyer and seller expectations," Rose said.

"However, we continue to believe a return to the 'glory days' of management teams and boards of directors expecting more than three times book value for their franchises is unlikely to return in the short to intermediate term," he added.

More industry consolidation seems inevitable as banks cope with tougher regulations, lower growth rates and higher capital requirements.

"With just under 6,900 FDIC-insured institutions in the U.S. today, we expect that fatigued bank management teams and boards of directors will become more apt to sell their franchise after weathering the current credit cycle," Rose said.

The pace of failed-bank acquisitions continues to slow, as the Federal Deposit Insurance Corp. has made such deals less attractive while the number of candidates has shrunk.

"Seven banks were closed during second-quarter 2014, which marked an increase from the five closures in first-quarter 2014 but was still the fifth-lowest quarterly number of failures dating back to third-quarter 2008, when bank closings began to increase," he said.

"Moreover, the number of banks on the FDIC's 'Problem List' has consistently fallen over the past few years, translating to fewer opportunities for potential acquirers," he said. …

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