The Independent Community Bankers of America has a message for banks hearing the call to sell: Don't buy into the hype.
The ICBA has elected to confront consolidation this year. While most of its ire is aimed at the consolidation that has already occurred at the top of the financial system, it is also pushing back against the trend of consolidation among the smaller banks.
Merger chatter is being promulgated everywhere, Camden Fine, the ICBA's president, declared at the group's annual convention in Honolulu. "Whenever you hear this type of defeatist talk about community banks, ask yourself where is it coming from," he said last month.
"Nine times out of ten, there's a profit motive behind it," he said. Investment banks and institutional investors "live off of this kind of talk. To foster mergers, they preach gloom and doom and promise great things after the merger."
The association also put out a release last week characterizing consolidation and regulation as "twin challenges." It also issued a statement reacting to a recent study by the Federal Deposit Insurance Corp. on bank mergers.
The FDIC study "reiterates that community banks continue to grow, adapt, and evolve and debunks the misguided rumors that banks must hold $1 billion in assets to survive," Fine and John Buhrmaster, president of 1st National Bank of Scotia, N.Y. and current ICBA chairman, said in the release.
The ICBA's focus on M&A is a bit unusual, given that it usually directs its efforts toward policy. But its leaders felt a need to respond to renewed talk about building scale.
"We do hear a drumbeat from consultants and bank analysts that say small banks need to consolidate," says Chris Cole, the ICBA's senior regulatory counsel. "We are trying to rebut this constant drumbeat."
The ICBA is not trying to tell bankers how to run their banks, Cole says. It is telling them to avoid getting caught up in a herd mentality.
"Consolidation might be in your best interest in some cases and you should consider that," Cole says. "Just don't feel pressured into doing it because at some conference someone got up and said that if in five years you're not at $1 billion in assets you won't survive."
If investment banks are motivated by revenue, it is also logical to assume the ICBA is motivated by its membership count, some industry experts say.
"Consolidation's threat is less members," says Ken Thomas, an economist and independent bank consultant in south Florida. "It is in a trade association's best interest to challenge an argument that pushes for fewer banks."
Cole disagrees. Consolidation is occurring among smaller banks and asset size is a component of the ICBA's membership dues. In theory, the loss of one member could be offset by higher dues from the buyer. "We just want to maintain a healthy community banking industry," Cole says.
At least one investment bank says it is not pushing an agenda. Capital Corp. in Overland Park, Kan., has been one of the busiest shops in the country and most often represents sellers. Bob Wray, its chief executive, says that, while it likes to keep in front of potential clients, most of its work comes from inbound calls.
"I get where the ICBA is coming from, but we try to take an unbiased position in the market," Wray says. "Banks are reaching out to us. They're feeling the pressure of low loan demand and regulatory issues, but succession is often the reason."
While the ICBA is encouraging members not to bend to the chatter, Cole says the group realizes the forces of regulation and a tepid economy are real. To help smaller banks feel confident about their future, the ICBA must continue to push for legislation like the CLEAR Relief Act, which aims to limit regulation on community banks, he says.
Fine also pointed out in Hawaii that there is more to community banking than the bottom line, noting that they play an important role in their communities. That weighs on sellers, Wray says.
"In almost all cases, they are selling to a similar community bank," Wray says. "The majority take care in choosing a buyer because they want to know what is going to happen to the community."
Rusty Cloutier, chief executive of the $1.9 billion-asset MidSouth Bancorp, is a past ICBA chairman and a serial bank acquirer. So not surprisingly, his views on consolidation are a blend of those two forces. He agrees that community banks serve an important role that goes beyond financial metrics and the industry needs to remain robust. But that doesn't provide banks with an excuse to underperform.
"I don't think a community banker can say, 'You shouldn't get a good return on your money because I'm the community bank of Morgan City," Cloutier says.
He agrees that there is a mismatch between the motivations of Wall Street and the realities of Main Street, adding that institutional investors are often too shortsighted and the investment banking community is "always trying to sell you or selling you something."
Consolidation is becoming an industry issue because of a lack of new entrants, he says. Traditionally, the pace of consolidation was somewhat offset by a steady stream of new banks, but the pipeline has been nearly shut off for de novos for the last five years.
"I don't think we'd be having this much of a conversation about consolidation if the regulators allowed people to put their money up to start a new bank," Cloutier says. "I don't think there is a clear statement out there that says community banks can't make it, but I do believe there will be a good number who sell because there are a good number of reasons to sell, but there are also a good number of reasons to get into the business."