Texas banks looking to merge with other institutions will have trouble finding suitors unless they are fully prepared to answer tough questions about their exposure to the reeling energy sector.
That's the assessment of BB&T Chairman and Chief Executive Kelly King, who says that some banks in the Lone Star State aren't being realistic about the impact falling prices is having on their loan portfolios.
While the $210 billion-asset BB&T is taking a temporary break from buying banks, it remains eager to bulk up in Texas and other Gulf Coast states where it sees gaps in its footprint. But the oil slump has created a situation where the Winston-Salem, N.C., company would not do a deal in Texas unless it could thoroughly examine a seller's loan files.
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The relationship between banks and private equity has been tense at times, but the aid PE firms are supplying to struggling energy firms could limit the losses suffered by lenders.
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Kelly King, the North Carolina company's chief executive, also noted that BB&T is busy integrating a number of recent acquisitions. It is leaning toward buying back stock, though management could be coaxed into making a deal if the right bank became available.
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KeyCorp believes it can surpass cost-cutting projections tied to its purchase of First Niagara Financial, while BB&T believes market duress could present it with more acquisition opportunities.
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Energy issues "cause us to be much more careful when it comes to determining the quality of the assets," King said during an interview following a speech sponsored by the Winston-Salem Chamber of Commerce.
"We can get through [energy issues] if we have a partner that is seriously interested in having a positive discussion," King said. "The key is that they have to be really realistic about the risk in their loan portfolio. Right now … everybody thinks that their portfolio is better than what it may be."
BB&T, for its part, is well-equipped to vet targets, and current accounting rules could still allow the company it buy a bank in a way where it "works economically," King added.
BB&T has time to sit back and evaluate the situation in Texas. The company is in the midst of a self-imposed hiatus from acquisitions as it works on integrating newly acquired operations in Pennsylvania and
That break from deals is voluntary, and BB&T could pursue another acquisition if doing so made long-term strategic sense, King said.
"All of our [potential] partners know of our long-term interest," King added. "If they were ready to do something, they would call us. … We would not let a really critical attractive merger pass us at this time."
