Bank Consolidation in this Millennium

The tragedy and comedy inherent in our banking system reminds me of a Steven Wright line: “You can’t have everything. Where would you put it?” Darn funny stuff from Mr. Wright.

The consolidation of banks, thrifts, and credit unions continues. Our curiosity got the best of us and we wanted to see how fast or how slow in terms of deals and values. The following charts highlight data on bank and thrift deals since 2000. All data is courtesy of our friends at SNL Financial.

Deals

The number of deals has actually slowed after the 2008 redux. That makes sense. Many deals in 2009 and 2010, as one can see in the second chart of the dashboard, were government-assisted deals. One can imagine that bankers are waiting on the sidelines in hopes of gaining higher and higher multiples. However, franchise value, from our perspective, will come from a couple of things: 1) size and 2) demonstrated leadership and technological/organizational nimbleness and scale. Furthermore, government-assisted deals are waning and doing so quickly. That’s a good sign. Institutional euthanasia is just wrong.

It has often been said that this industry is highly commoditized. We think that is a fair assessment. What strikes us as interesting is that no one really loses sleep if there are fewer institutions. It’s not really the same when compared to say gold bullion or copper plating. Panic sets in and prices rise.

Deals

 

Values

We’ve represented dollar value of deals in two ways below. The first, Total Deal Value, shows a pretty murky market. The Total Assets data speaks to the relatively small size of the institutions coming to the altar.

Values

We’d rather have something than nothing

Overall, there’s just not much action in the consolidation business right now. Ultimately, this should not keep FI executives from seeking out deals. We believe that there is growing demand for bigger and better. Scale economies mixed with the right assortment of service technology and outstanding human resources will win over customers.

It’s true. You can’t have everything. However, one can plan for the advent of just about everything – from force majeure to what is the correct path for your institution and its stakeholders. This doesn’t mean that one has to predict the future. That, after all, would be having everything and Mr. Wright has already demonstrated there’s no place for that.

For assistance looking at markets, operations, and financial impact for your community financial institution, give us a shout. Or, if you like, you can whisper our name in the wind. It all works. Call us at 908.368.1270 or complete our contact form here.

Where are they now? US Financial Institutions (less than $5B) as of June 30, 2013

I find the nostalgia pieces about burned out movie stars and TV teens, well, interesting. Though the industry many of us work in is not quite as, well, interesting, it does tend to have its own nostalgia. Where is everybody? What do they look like today? Will they be here tomorrow?

On our journey to analyze individualized, institutional concentration risk, which is based on our earlier post on the same topic, we thought we’d take a slight detour and see exactly where they are today: Commercial banks, savings banks, and credit unions. With an interest in community financial institutions, we thought we would limit it to institutions of $5B or less in total assets.

Pictures have a way of turning your attention. The pictures below did the same for us. The numbers caught our eye, too. With 13,585 total institutions reporting, we find the following breakdown:

  1. 5,880 commercial banks with $1.93T in total assets, or $328.1M per institution.
  2. 924 savings banks with $412.0B in total assets, or $445.9M per institution
  3. 6,781 credit unions with $889.6B in total assets, or $131.2M per institution

Total assets were approximately $3.23T, or $237.8M per institution.  Makes you giddy, doesn’t it?

As you look at the maps below, please consider the nature of our country. We are a fiercely independent and free-spirited nation. However, we can’t help to look at the map, while considering some of the numbers, and wonder what will this mean for financial institutions below a certain dollar threshold or with business models that need an infusion. Can this stubborn independence last? Is it the best thing for the end user? It’s not if technology will have an impact, but how, when, and to what level. The vector of change has not yet shown itself as we believe it will in the future. We are just getting started.

Be prepared. Be thoughtful as a leader and as a follower. Galvanize your team around sound business decisions. Survival as is certainly is the preferable outcome. In many cases, union and partnership maybe the best option for the customer or the member/owner. If the latter is your chosen path, be it as the acquired or acquirer, be firm but know that none are your enemy. It’s what has to happen.

Also, please know that these maps will change.  That notion will survive all of us.

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

 

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

 

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.

 

All data provided by SNL Financial. Data visualization built on Tableau.

All data provided by SNL Financial. Data visualization built on Tableau.