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Three small banks that recently waved the white flag detail why it was better to sell now, take some stock in a bigger company and stop a losing battle for capital and market share. Their proxy filings are a preview of coming attractions.
January 3
All banks are affected by more stringent regulation, but it is the less-healthy ones that are most likely to throw in the towel because of it.
That's how Stifel, Nicolaus & Co. Inc. analyst Collyn Gilbert sees merger-and-acquisition activity playing out in a post-crisis, post Dodd-Frank world.
Speaking to the Wall Street Transcript this week, Gilbert said that while new regulations are a burden for all banks, it is the weaker ones that are nearing "a breaking point" and could have little choice but to put themselves on the block.
"For the healthier banks, the pain [of regulation] seems to be more from an administrative and an operational perspective," Gilbert said. "The weaker banks, I think, will see it become more of an intense cost burden. They're really going to have to raise capital or increase staffing, and the overall cost component is going to be too prohibitive for them to make meaningful profits. I'm hoping that that frustration and the cost burden will motivate more banks to sell."
Like many observers, Gilbert said she believes the industry "desperately" needs to consolidate.
Still, while most experts say there are simply too many banks chasing too little business, Gilbert also believes that the industry — particularly small and regional banks — are generally healthier than bank stock prices would indicate.
"A lot of these smaller banks are still able to generate some income from spread…and they're able to take market share," she said. "What we've been telling investors is try to minimize that noise and really think about these companies from a business perspective, and if you can be patient, it will pay off."
