An increasing number of bankers are growing tired of playing a waiting game with Washington.
The banking industry was overcome with optimism when Donald Trump was elected president, fueled by a belief that the incoming administration would roll back regulation and introduce meaningful tax reform.
Post-election euphoria tamped down M&A talk as bankers were hopeful that promised change, paired with rising interest rates, would justify remaining independent. The pace of consolidation though Aug. 8 is off nearly 7% from a year earlier, based on data from Keefe, Bruyette & Woods and S&P Global Market Intelligence.
There are signs bankers are getting restless as regulatory relief and tax reform have taken a back seat — at least publicly — to a stalemate on health care and a host of foreign and domestic crises.
Bankers are worried that “things probably aren’t going to change as drastically as everybody had hoped,” said Bob Wray, managing director of Capital Corporation, adding that his Prairie Village, Kan., firm has picked up multiple clients looking for buyers.
Some clients, who tend to have less than $500 million in assets, have expressed frustration with a “lack of progress in Washington,” Wray said.
The logic makes sense, said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
“Everyone expected more on the policy side,” Plath said. “There’s a lot of disappointment in the industry … and that is leading some banks to seek a different path.”
Early March represented an inflection point of sorts for banks and their investors. The KBW Nasdaq Bank Index, which jumped 32% between the election and March 1, has fallen by nearly 6% since then.
While the reversal might make potential sellers nervous, bank stocks still remain high enough to give aspiring buyers sufficient purchasing power for financially viable deals, industry observers said.
Acquirers “are being a little more aggressive,” Wray said.
At the same time, many of the same issues that weighed heavily on bankers' minds before the election remain. Management teams and boards are continuing to age and competition is still fierce for the best loans. And deposit prices are inching up, putting a premium on banks with substantial core funding.
John D’Angelo, CEO of Investar Holding in Baton Rouge, La., said he is seeing those factors at work as he looks for acquisitions. The $1.2 billion-asset company agreed earlier this month to buy BOJ Bancshares in Jackson, La.
Investar has also witnessed “pent-up demand” among bankers who think of selling as a way to take advantage of the post-election appreciation in stock prices, D’Angelo said. Investar, which spent only $22 million on BOJ, is open to more deals.
Oak Ridge Financial, an investment bank in Golden Valley, Minn., has one client that was willing to wait six months after the election to see if reform would gain traction, said David Stieber, the firm’s managing director. Another client held out for 90 days before agreeing to a deal that will close early next year.
“They’ve kind of preserved themselves,” Stieber said, who declined to mention which bank he was referring to.
The fact that so many bankers are getting antsy doesn't imply that M&A will meaningfully accelerate, industry experts note. There are still banks that are optimistic that positive changes will eventually take place.
“The health of banks continues to be very strong,” said Rose Oswald Poels, CEO of the Wisconsin Bankers Association. “We are hopeful that we’re going to see [regulatory and tax reform] sometime yet this year."