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.