Banking on Profits main portfolio is up 17.2% this year. We have participated in multiple takeovers during the year. We have two stocks down on the year with the biggest declining stock down just 2%. Bonus bank stock picks have averaged 20.47% over the past 52 weeks. As a holiday special you can get a full year for 20% by clicking here and using coupon code BOP23
Don’t take my word for it- Look what the bankers, lawyers, brokers and rating agencies are saying abou the trade of the decade in community bank stocks.
Why are they shrinking?
The banking industry and regulators cite a variety of reasons, including:
▪ During this era of low interest rates, banks are having a hard time growing their net interest margins, the difference between what a banks pays on deposits and receives for loans.
In addition, loan growth remains challenging while the economy is still recovering.
Those factors are motivating some banks to grow and improve their profitability by other means, such as through mergers and acquisitions.
▪ Banks are facing rising costs from new regulations and the need to spend more to bolster their mobile-banking platforms and cybersecurity. By merging, banks can gain economies of scale to absorb such costs. -Charlotte Observer
Look for BB&T to continue to pursue acquisitions during 2016, BB&T CEO Kelly King has said. “So that’s $10 billion to $20 billion (in acquired assets) in a year,” King said during an investors call in July, recounting recent acquisitions. “I feel confident in that same category range for next year. There are a number of institutions, let’s just say in the $5 billion to $20 billion range, that I think are considering their strategic opportunities and may present some availabilities.”-Triad Business Journal
As of early December, there have been just under 250 Bank & Thrift M&A deals in 2015 with a $742 Million average Asset size at the Seller. There were 267 transactions in 2014 and 209 in 2013, both with Sellers just over $560 Million in average Assets. It is less important that the average Asset size is higher—the percentage of deals above $1 Billion consistently has been around 10%. Big Bank M&A is not the trend and this was true back in the late 1990s (see our charts here). In 2016, we expect M&A deals to increase, but the Sellers’ size is unlikely to change much at all. Small Bank consolidation is the real trend — frankly, it always has been. Although some larger institutions may merge, we feel the large Bank deals such as FNFG-First Niagara and AF-Astoria Financial in the past few weeks (Fall 2015) are quite unique. The clearer trend is that small Banks continue as the most active sellers.- Chris Marinac FIG Partners.
As banks grapple with the cost of regulation and soldier on in the lower-for-longer interest rate environment, banks’ net interest margins and profitability will be pressured, which we expect to lead to M&A in 2016.” “Even with steady capitalization levels, U.S. bank earnings will be challenged next year due to economic headwinds and the strengthening dollar,” said Christopher Wolfe, Managing Director Financial Institutions at Fitch Ratings. “As banks grapple with the cost of regulation and soldier on in the lower-for-longer interest rate environment, banks’ net interest margins and profitability will be pressured, which we expect to lead to M&A in 2016.- Fitch rating agency
Jimmy Dunne, co-founder at Sandler O’Neill & Partners, went on Bloomberg late last week and replied “absolutely” when asked if regional banks’ M&A would continue. Dunne said that conditions were ripe for continued activity and that it was not a case of “I think it is going to happen. It is going to happen”.- Real Money
“We recommend investors also consider allocating capital to M&A as the building momentum is also likely to be a profitable investment strategy. In the face of somewhat elevated multiples and relatively-stagnant profitability metrics, stock selection, both fundamentally and M&A-based, should provide the backbone of investor returns in 2016,” the firm also said.-KBW
With total bank capital at the highest level in many years and bank earnings continuing to recover, I predict that there will be in excess of 400 unassisted bank mergers in 2016. This will be the highest total of mergers since year 2000.” -— Mark W. Olson, Chairman of Treliant Risk Advisors and former Federal Reserve Board governor.
“In at least one quarter of 2016 — and quite possibly the entire year — the industry will see for the first time the number of bank charters shrink on an annualized basis by more than 6%. As a result, investor interest in the banking sector, and most specifically in smaller regionals and larger community banks, will spike to levels not seen since well before the financial crisis.”— Richard J. Parsons, former executive at Bank of America and author of Broke: America’s Banking System
Nutter McClennen & Fish says it has either closed or advised on eight New England bank mergers in 2015, a record for the Boston law firm. Kenneth Ehrlich says new Dodd-Frank requirements for local banks are a driving force behind the uptick in mergers, as an increasing number of community banks — particularly those where the CEOs are retiring — look for the safety of a bigger partner. “There’s a certain amount of governance fatigue,” says Ehrlich, who runs Nutter’s banking practice with Michael Krebs. “The visceral reaction [against mergers] has lessened.” – Boston Globe
The Trade of the Decade is here. Its real and happening now. Get Banking on Profits for 20% off here. We are up 17.2% in 2015 and expect a better year next year. Use Coupon code BOP23