New firm sees opening to provide investment services to community banks
A pair of Portland, Ore., investment bankers has formed a new firm aimed at taking advantage of recent consolidation.
Joey Warmenhoven and Tom Thiel, who recently left Wedbush Securities, recently opened JWTT. The firm's debut comes at a time of steady M&A among banks — along with a wave of deals involving other investment banks.
The hope is that those mergers will provide opportunities for the fledgling firm.
PNC Financial Services Group bought Ambassador Financial Group in April, around the time that Janney Montgomery Scott acquired FIG Partners in Atlanta. Performance Trust Capital Partners acquired Banks Street Partners early this summer, and Piper Jaffray in Minneapolis agreed to buy Sandler O’Neill in July.
"We always had a dream of having our own company," said Warmenhoven, who first worked with Thiel at McAdams Wright Ragen before its 2014 sale to R.W. Baird. "We definitely saw a need because there's not many investment banks left that are specializing in community banks."
While M&A and equity research are long-term goals, Thiel said the firm will initially focus on helping banks raise capital, serving retail and institutional investors and operating as a market maker for small bank stocks. The firm is working with roughly 500 banks traded on OTC and Nasdaq exchanges.
Thiel said a number of investment banks have shifted their focus to fintech, leaving few that specialize in illiquid stocks or small-cap securities.
"I think there's a void to be filled by someone that can handle thinly traded stocks and some of the places the large wirehouses are turning away from," Thiel said.
JWTT plans to leverage its partners' experience and connections. Thiel and Warmenhoven said they know the management teams of many banks and are in close contact with a large network of community bank investors.
The key to JWTT's success will be the founders' understanding of the banks they serve, said Phil Timyan, a veteran bank investor.
Successful investment banks "help both investors and managements be more effective in a way that helps all stakeholders," Timyan said. "They also can raise capital faster and cheaper for banks in need."
Warmenhoven said western markets including Portland, Seattle and Boise, Idaho, are fertile ground for capital raising, noting that urban markets are drawing more money than rural areas due to their growth potential.
Despite a recent uptick in de novo activity, Warmenhoven said investors remain skittish on new banks because they remember the problems that arose with in the early 2000s. Many investors are more apt to invest in banks with $50 million or $100 million in assets.
While overall bank M&A has lagged some this year, due in part to a decline in bank stocks, Warmenhoven said a pickup is inevitable as the nation's 5,700 banks come to terms with ongoing challenges.
JWTT could benefit if it eventually captures a small amount of market share from the investment banks that have been sold. Sandler, FIG Partners, Banks Street and Ambassador advised 95 banks in M&A discussions last year, with a total deal value of $22.9 billion, according to S&P Global Market Intelligence.
Sandler alone advised 62 banks on deals worth a total of $18.3 billion.
Peter Wilder, a lawyer at Godfrey & Kahn in Milwaukee, said he is watching those investment banks to see if they shift away from smaller banks to focus on bigger clients. That would create more opportunities for new investment banks, though new entrants will need to diversify beyond M&A advice.
"M&A is very active right now, but if we see a recession soon the ability to help raise capital becomes important," Wilder said.
Despite fears of a possible recession, Warmenhoven and Thiel said now is a good time to buy bank stocks, in part, because they are cheap.
"We're not hearing of any credit issues yet," Warmenhoven said. "As we're sitting right now, we're feeling pretty good about the health of the whole sector."