WASHINGTON – Community bankers hoping that a Republican landslide at the election box this week would ease their regulatory burden are now reassessing their profit prospects – and independence.
"A lot of people had hopes that [Mitt] Romney would unleash some of the animal spirits in the economy," said John Corbett, president and chief executive of $2.4 billion-asset CenterState Bank of Florida in Winter Haven. "Now, there's more certainty of the status quo which is slow growth, low interest rates and big government."
Although it's still unclear what the election will mean for bankers, most observers expect regulators to move faster to implement the Dodd-Frank Act.
"The reelection of President Obama does suggest that it will be full speed ahead for the Dodd-Frank rulemaking process," said Eugene Ludwig, chief executive officer of Promontory Financial Group.
That is bad news for many small banks, who fear the financial reform law will gut profits and add to their compliance burden.
"We're going to get more regulations and a tightening down on consumer rules," said Rusty Cloutier, president and chief executive of $1.4 billion-asset MidSouth Bancorp (MSL) in Lafayette, La. "The President, the Senate and the House leadership will all turn to the regulators and say, ‘don't you dare let another banking crisis come on this watch.'"
While the results may not have been what most bankers wanted, at least they are now more certain about the onslaught of regulations coming their way.
As a result, many banks once hesitant to sell at current low prices may reconsider.
"Some boards that were holding out and hoping things would go back to the way it was a few years ago now realize that's probably not realistic," said Dan Bass, a managing partner at FBR Capital Markets. "For some of these banks, this [election] will probably be the tipping point."
Cloutier estimates that the country will lose at least 1,000 banks to consolidation during the next three to five years.
Unlike earlier this year, bankers now argue that mergers and acquisitions won't come in a crashing wave. Instead, it's likely that the weaker banks will gradually sell themselves as regulations increase and earnings stay flat or decrease.
"You're not going to see a huge surge in acquisitions," said Ed Wehmer, chief executive of $17 billion-asset Wintrust Financial (WTFC) in Rosemont, Ill.
"The reason is a lot of these guys are still not healthy enough. When we apply our marks [to a potential seller's books] there's nothing left."
Matt Hames, the former president of family-owned First Cherokee State Bank in Woodstock, Ga., which failed in July, acknowledged he is somewhat relieved he doesn't have to face the burden heading banks' way.
"It was hard to watch the folks I know and love go through closure," said Hames, now the chief executive of Acru, a trust company that the failed bank operated which was bought by $2.5 billion-asset Community & Southern Bank in Atlanta.
Hames started rebranding $223 million-asset First Cherokee under Acru before it failed and was sold to Community & Southern. The concept was to focus more on wealth management in a relaxed setting of a coffee shop and social space rather than a traditional bank branch. The concept took off but the bank did not.
In hindsight after the election, Hames said he was grateful he has more resources from a healthy parent company to help build on the new concept behind Acru. Because it is no longer a traditional bank, he said Acru has been rekindling relationships with consumers who remain skeptical of the banking industry.
"Acru is now in a much better place to really change the way people view money," said Hames, who kept the coffee shop opened late for election viewers. "The problem is, our industry has been too much about us for too long. We want to show clear and decisive leadership to the communities and employees that we invest in."
Although the president has repeatedly said he favors community banks, while expressing criticism for the megabanks, many small bankers say his policies are killing them. They pointed to plunging bank stocks the day after the election as proof that investors know it too.
They also say businesses remain reluctant to borrow because of fears of the fiscal cliff.
"The war on business and banking is still going on," Wehmer said. "A lot of our customers are survivors and are doing pretty well but they're sitting on cash because they can't deal with the uncertainty."
Randy Ferrell, president and chief executive at $583 million-asset Fauquier Bankshares in Warrenton, Va., said the election removed some of the uncertainty that might have kept borrowers on the sidelines but taxes remain the primary concern. If Bush-era tax cuts are allowed to expire, that could greatly affect small business owners' decisions to hire workers, expand or invest in inventory, he said.
"Right now there's as much pent up uncertainty as there has ever been," said Ray Davis, president and chief executive of $11.5 billion-asset Umpqua Holdings Corp. (UMPQ) in Portland, Ore. "People are waiting and it's irresponsible to think that the US government cannot sit down and figure out how to take our country forward."