How to boost revenue despite a reg order
Many banks are weighed down with orders tied to the Bank Secrecy Act and anti-money-laundering laws. Others are dealing with low Community Reinvestment Act ratings. Bank M&A and branching are typically off the table until such issues are addressed, but that doesn't mean all growth opportunities are gone. Here are some ways constrained banks might be able to add revenue while working through their regulatory challenges.
Form a joint venture
Institutions locked out of bank acquisitions could still have opportunities to invest in other companies. That’s what Ameris Bancorp in Moultrie, Ga., did after being hit with a regulatory order. Ameris bought a minority stake in an insurance-premium finance firm — with its regulators’ blessing — with hopes of buying the company outright once its order is lifted.
There’s nothing wrong with hiring experienced lenders while operating under a BSA order. Just ask Fulton Financial, which is looking to take advantage of recent consolidation in its home turf. “There’s been some business up for grabs,” said Casey Haire, an analyst at Jefferies, with Fulton emerging as a beneficiary.
Find a niche
Hamstrung banks in need of revenue could form divisions that target new types of loans to boost revenue. Medical practices, equipment finance, franchising and transportation have all been cited by industry experts as specialized areas that banks could target. The same could be said for fee-generating businesses.
Buy fee-generating businesses
While bank acquisitions are usually a no-no for institutions operating under regulatory orders, there are times when nonbank deals are OK. BancorpSouth, which is dealing with a low CRA rating, was recently able to buy an insurance agency. U.S. Bancorp, which is dealing with BSA issues, also had the ability to buy nonbanks.
Scale up where others are dialing back
There may be opportunities to increase lending in areas where others are backing off. One example is commercial real estate, where many banks are bumping up against exposure levels that could draw added regulatory scrutiny. As those institutions tap the brakes, opportunities might open up for others. Expertise and loan structure are important considerations.