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Change Never Happened
As published in the Mississippi Business Journal.
This was supposed to be the year of historic change in the state's banking industry. All over the state, folks at healthy banks were rolling up their sleeves in advance of the predicted rollup of community banks who were weakened by to margin and competitive pressures, a lack of growth opportunities and regulatory burdens.
BancorpSouth? Nothing. Trustmark? No mark. Regions? Reserved. Those fatigued banks were supposed to be even more vulnerable with banking reforms coming online in July. But it is that uncertainty over the impending regulations, and a much tougher market has made the year of the acquisition a yawner. In short Dodd-Frank has been a downer.
"Everybody was anticipating mass consolidation," said Hans Petit, a Jackson-based partner in the HORNE CPA & Financial Advisors firm and head of the financial institutions practice. "It's just a slower timetable than expected. Right now I think there is some sticker shock. Some banks are finding out the value of their bank is not as much as they thought, and they are hold out for a better deal.
"But there is just so much uncertainty in the regulatory world. What people have to understand is that they may be looking at their best offer now. And it apparently is not tough enough that [sellers] will take what the market is giving."
But for now the gap between the buyer and the seller is cavernous. And another part of the sluggishness is too keen a memory of a market long sense changed.
"We just came out of a market that was three to seven times higher than the book value," Petit. "People are just going to have to realize they don't have the premium they had before.
"Folks are waiting and seeing. As it is a lot of regulations haven't happened yet. What's going to be has yet to happen. They want to see how it plays out. Some will take what the market gives now or be like Hancock-Whitney that worked out."
Hancock's acquisition of Whitney Holding Corp. made sense for both entities. Strengthened exponentially, together they now have roughly $20 billion in total assets, $16 billion in deposits and $12 billion in loans. Additionally it has increased its footprint along the Gulf with about 300 branches and about 5,000 employees stretching from Texas to Florida for the Gulfport-based Hancock and New Orleans-based Whitney.
With such an undertaking there are so many hurdles to take into account. First and foremost, for all the crunching of numbers, there still is no guarantee a merger is going to work. The melding of two cultures or the all out acceptance of one over the other. Handling personnel, systems, business units and overall operations make these transactions dicey.
But so far so good with Hancock-Whitney. That was an example of a strategic partnership, which is likely to be the route many banks thinking about M&As will be doing. Petit has said this strategy could prove helpful to both parties. Under pressure to show something for their acquisitions, to see some asset growth, without loan demand, acquisitions have been the way to do that.
"Those that happen will be strategic, like with Cadence [Bank]," Petit said. "And Whitney found a strategic partner.
Last September, Cadence, the Starkville-based bank with 38 branches in five southeastern states, initially inked a merger agreement with Jackson-based Trustmark Corp. But the deal never happened as Community Bancorp, LLC, of Houston came in with a new offer. Under the new offer, it will allow Cadence to operate under its name and charter and keep all its employees. Additionally, Cadence shareholders get 25 percent more for their stock than in the earlier offer from Trustmark.
Those examples are rarities. According to recent data from Thomson Reuters, this year the number of bank mergers in the country remains well below its peak in late 2008 and early 2009, with just 123 mergers announced this year through the third week of June. By contrast, 277 deals were announced during the same time in 2009.
Additionally, the number of bank transactions assisted by the FDIC has slowed in recent months as well, as it has seized fewer failing institutions.
"The FDIC-assisted deals are going away. Expect more and more FDIC deals or ones where two will decide that together they are better than separated, like Hancock-Whitney."
In this climate, folks aren't engaged in deals where there are banks too big to fail. Rather they are interested in taking advantage of community banks that just may be too small to survive.
Such a bank was Heritage Banking Group of Carthage, the only bank in Mississippi to fail. The FDIC was named as receiver and sold the bank to Jackson's Trustmark National Bank, which assumes all deposits of Heritage Banking, which had eight branches.
Because Mississippi banks were not overextended by bad mortgages, the stories like Heritage are rare. Contrast that with the markets in Florida and Georgia, which together totaled 104 banks with "zero" ratings in the Bauer Financial rating issued last week.
