Big banks need healthy stocks and clarity on capital to coax them into doing more deals, says Frank S. Cicero, an investment banker in charge of the global financials group of Jefferies & Co. Inc.
Though bank stock prices are up this year, the largest banks are still waiting for the Federal Reserve to sign off on capital plans they submitted in early January, Cicero says.
The 31 U.S. banks with at least $50 billion of assets that submitted plans may be more inclined to go shopping once they know how much capital they can use to buy back stock, raise dividends or do deals, Cicero says.
"Confidence has increased," Cicero says. Better-performing stocks and capital certainty "should be the recipe for more deal activity."
Jefferies — and its rivals in the heated bank M&A sphere — has been anxiously waiting for banking to emerge from one of the deepest deal droughts in decades.
Cicero was global co-head of depositories at Lehman Brothers when most of its U.S. operations were sold to Barclays in 2008. He joined Jefferies in December 2010 as managing director and global head of financial institutions investment banking. He brought over Jason Reid — currently a Jefferies managing director — and five other members of his Barclays team.
Jefferies took advantage of the upheaval in U.S. banking as an opportunity to build a full-scale financial services practice, tapping Cicero to recruit in M&A, specialty finance, capital markets, fixed income and other segments.
In January, Jefferies hired Bank of America Merrill Lynch veteran Abbott Cooper, who has been named a managing director with a focus on broadening bank M&A coverage in the South and Midwest. Other key appointments have included Alexander Yavorsky, managing director in charge of balance sheet and funding strategies for financial services clients, and Casper Bentinck, managing director leading the debt capital markets practice for financial institutions.
Competition among bank M&A advisors has intensified. A dearth of big deals has prompted other global players to target community bank deals, an area long dominated by the boutiques Sandler O'Neill & Partners LP and KBW Inc.
Cicero's bullish outlook on Jefferies' competitive prospects comes down to experience and financial health. Jefferies is relatively healthy, diverse and independent, he says. That means it is not bogged down by some of the problems facing boutique firms and investment banks that operate inside large bank holding companies.
Lehman was also among the most active bank M&A advisors, particularly in the Northeast, where Jefferies is well positioned. People's United Financial Inc. hired Jefferies as the advisor on its purchase of 56 branches in New York from Citizens Financial Group Inc. in part because Lehman was involved in an important deal People's made in Vermont in 2007. Jefferies also advised Bancorp Rhode Island Inc. last year in its sale to Brookline Bancorp, and Berkshire Hills Bancorp Inc. in its deal for Connecticut Bank and Trust Co.
"We're benefiting from the health of Jefferies," Cicero says, adding that he would "not be surprised" if larger players scale back eventually. "I know we're going to stay committed."