Is It Time for Banks to Rethink Insurance?

It’s no secret that the number of insurance agency acquisitions by banks and thrifts has declined considerably over the last ten years. According to SNL Financial, an average of 60 agencies were purchased by banks annually between 2004 and 2008. Over the next five years, the average annual tally dropped to 27. The most likely reason for this decline is the effects of the recession and less capital available for investment. Interestingly enough, however, the number of agency divestitures by banks has been fairly constant at about ten per year. In the broader market for insurance agencies/brokerages, transaction volume has only gotten more robust over the last ten years, including a record 361 deals completed in 2012.

Banks Interested in Asset Managers and Trust Companies

In a low interest rate environment coupled with rising capital requirements, many banks are turning their attention to asset managers and trust companies to improve ROE and diversify revenue.

Powered by a fairly steady market tailwind over the last few years, many asset managers and trust companies have more than doubled in value since the financial crisis and may finally be posturing towards some kind of exit opportunity to take advantage of this growth. Still, there are often several overlooked deal considerations that banks and other interested parties should be apprised of prior to purchasing an asset manager or trust company. In this article, we outline our top three considerations when looking to purchase these kinds of businesses in today’s environment.

Evaluating a Buyer’s Shares

Depending upon who answers the question, U.S. M&A activity runs the gamut from ho-hum to good. Few will answer that it is outstanding even though market observers have expected activity to accelerate across industry sectors because financing costs are low, … Continued

Tri-State Capital’s Acquisition of Chartwell Investment Partners: A Blueprint for Asset Manager Transactions

On January 7, 2014 Tri-State Capital Holdings, Inc. (NASDAQ ticker: TSC), the holding company of Pittsburgh-based TriState Capital Bank, entered a definitive asset-purchase agreement to acquire Chartwell Investment Partners, L.P., a Registered Investment Advisor (RIA) in the Philadelphia area with approximately $7.5 billion in assets under management (AUM). Unlike most acquisitions of closely held RIAs, the terms of the deal were disclosed via a conference call and investor presentation; the details of which are outlined in this article.

2013 Year-End Market Recap: Winners and Lesser Winners

While many banks chafe under tightening regulatory policy directed by the Federal Reserve and other agencies, the Fed’s monetary policy has, however, created favorable conditions for equity investors. Likewise, the Fed’s monetary policy has compressed spreads on credit-sensitive assets and negated the return on holding liquidity. From bank management’s perspective, these conditions have led to continued deterioration in asset yields, pressure to extend loan portfolio durations, and few remaining alternatives to reduce funding costs. In sum, the Federal Reserve and other agencies have created conditions that complicate bank managers’ decision making – namely, greater regulatory burdens and the effects of a prolonged low interest rate period. However, the Fed’s monetary policy also has created conditions ripe for expansion of banks’ stock prices.

Credit Marks on Acquired Loan Portfolios Trend Down During 2013

Merger related accounting issues for bank acquirers are often complex. In recent years, the credit mark on the acquired loan portfolio has often been cited as an impediment to M&A activity as this mark can be the most critical component that determines whether the pro-forma capital ratios are adequate. As economic conditions have improved in 2013, bank M&A activity has also picked up and we thought it would be useful to take a look at the estimated credit marks for some of the larger deals announced in 2013 (i.e., where the acquirer was publicly traded and the reported deal values were greater than $100 million) to see if any trends emerged.

Share Repurchases

Many bank analysts have been arguing that investors should buy bank stocks because capital is building faster than it can be deployed. The Federal Reserve, unlike during the pre-crisis era, is governing the amount of capital returned to shareholders. Basel III is another governor, especially given the enhanced leverage ratio requirement large U.S. banks are facing. But are buybacks a good idea for bank managers today?

Specialty Finance Sector Shows Signs of M&A Life

Acquisitions of specialty finance companies by banks are not a panacea for challenges that face the industry; however, in some instances a transaction that is thoroughly vetted, well-structured, and attractively priced can provide the buyer a new growth channel while also obtaining revenue and earnings diversification.

Evaporating Gains

Comments by Federal Reserve Board Chairman Ben Bernanke in the second quarter of 2013 resulted in significant increases in Treasury rates during the quarter, particularly for longer-term securities. In May, Bernanke testified before Congress and outlined the Fed’s eventual approach … Continued

Community Bank Stress Testing

While community banks may be insulated from certain more onerous stress testing and capital expectations placed upon larger financial institutions, recent regulatory guidance suggests that community banks should be developing and implementing some form of stress testing and/or scenario analyses.

S Corporation Banks Beware

While most banks and their directors are generally aware of the tax benefits of an S election, there are some potential disadvantages.