The Trade of the Decade is happening. The only question is how much will you make as a result. Right now you can get 20% off Banking Profits with a guided portfolio of community bank stocks, weekly commentary and buy/sell alerts whenever we make a trade. You also get banking on Profits Monthly to help you keep on track of institutional and insider buying in the industry I am also including a full year of my regular Deep Value letter free to help you find bargains in the rest of the markets. The full value of this offer is almost $1600 and to help you get in on and profit from the Trade of the Decade you get it all for 20% off the price of Banking on Profits alone. Click here to take advantage of this opportunity to get all three letters for 20% less than you would normally pay for Banking on Profits alone. Use coupon code bop3r.
Listen to what bankers, investment bankers and industry experts are saying about the trade fo the decades in small banks.
Activist investors are increasingly campaigning against US financial institutions (FIs), a move driven by changes in the activists’ approach and an increased alignment with regulatory objectives, according to Fitch Ratings.- Fitch Ratings
Bank CEOs and their boards are feeling intense pressure to grow their institutions. Sixty-seven percent of the bank executives and directors who responded to Bank Director’s 2016 Bank M&A Survey believe their bank needs to grow significantly to compete in today’s marketplace. When asked how large their bank needs to be to compete, a slim majority—one-third—cite $1 billion in assets. Shara agrees, referencing a competitive and costly operating environment. “Scale is so important today. We all have similar regulatory and compliance costs, and you have to spread that over a bigger base,” he says.- Bank Director Magazine.
But smaller banks across the country can attest that in today’s environment such challenges are not confined to midsize and large financial institutions. For the past several years, headwinds facing community banks have driven record levels of bank consolidation. Since 2013, more than 700 U.S. banks have merged with or been acquired by another institution. During the same span, the number of FDIC-insured banks has declined from 7,083 to 6,270, with Arkansas experiencing a drop from 120 to 106 such banks. This consolidation has been heavily weighted toward smaller community banks, with more than 90 percent of acquired banks holding less than $1 billion in assets. The trend doesn’t appear to be slowing — analysts expect banking to remain an active deal sector in 2016 as community banks become even more attractive to their larger counterparts, and this week the CEO of the Consumer Bankers Association predicted that one in six banks nationwide will ultimately be forced to merge. Each of these acquisitions requires not only a buyer in search of growth opportunities, but a determination by the target that the time is right to sell. Why are community banks increasingly deciding that now is the time?- Aaron Brooks, Arkansas Business.Com
Consolidation in the U.S. midtier regional banking sector is likely to continue as midtier banks (with total assets ranging from $10 billion-$50 billion) seek to expand their branch footprints and asset bases, according to Fitch Ratings. ‘Midtier banks have been active acquirers over the last year and this trend is expected to persist in 2016 and beyond as midtier banks continue to buy-up community banks struggling with growing regulatory burdens in a low rate environment,’ said Bain Rumohr, Director, Fitch.- Fitch rating Service
Hedge funds such as Ancora Advisors, Clover Partners and Seidman & Associates are buying up stakes in lenders across the U.S., from community banks to large regional lenders. Driving these investments is the view that ultra-low interest rates, lagging returns on equity and tough regulations will push more banks to merge, with buyers willing to pay a hefty multiple to a bank’s tangible book value. Activist investors interviewed by Reuters say another factor is exposure to energy-related loans, which is driving down the valuations of certain banks and making them all the more vulnerable to a takeover. “Bigger banks are back in the market doing deals,” said Ralph MacDonald, a partner at law firm Jones Day, who specializes in mergers and acquisitions. U.S. bank mergers and acquisitions volume rose 58 percent last year to $34.5 billion, according to Thomson Reuters data.-Reuters
A new study by Marshall Lux and Robert Greene reports that since the enactment of Dodd-Frank community banks have lost market share at twice the rate that they did prior to Dodd-Frank. The authors note that many of the regulations implemented pursuant to Dodd-Frank are not linked to the size of the institution, thus there are economies of scale in regulatory compliance. Thus, regulatory costs tend to fall proportionally heavier on smaller banks, which, in turn, tends to promote consolidation of the industry (as I noted several years ago when I predicted that Dodd-Frank would promote industry consolidation).- Todd Zywicki Washington Post
There has been a cumulative impact of M&A activity over the years. As of September 30, 2015, there were 6,270 insured depositories compared to about 18,000 institutions in 1985 when interstate banking laws were liberalized. M&A activity when measured by the number of transactions obviously has declined; however, that is not true on a relative basis. Since 1990, the number of institutions that agreed to be acquired in non-assisted deals ranged between 1.4% (1990) and 4.6% (1998) with an overall median of 3.2%. Last year was an active year by this measure, with 4.4% of the industry absorbed, as was 2013 (4.5%). What accounts for the activity? The most important factors we see are (a) good asset quality; (b) currency strength for many publicly traded buyers; (c) very low borrowing costs; (d) excess capital among buyers; and (e) ongoing earnings pressure due to heightened regulatory costs and very low interest rates. Two of these factors were important during the 1990s. Asset quality dramatically improved following the 1990 recession while valuations of publicly traded banks trended higher through mid-1998 as M&A fever came to dominate investor psychology. Today the majority of M&A activity involves sellers with $100 million to $1 billion of assets. According to the FDIC non-current loans and ORE for this group declined to 1.20% of assets as of September 30 from 1.58% in 2014. The most active subset of publicly traded banks that constitute acquirers is “small cap” banks. The SNL Small Cap U.S. Bank Index rose 9.2% during 2015 and finished the year trading for 17x trailing 12 month earnings. By way of comparison, SNL’s Large Cap U.S. Bank Index declined 1.3% and traded for 12x earnings. Strong acquisition currencies and few(er) problem assets of would-be sellers are a potent combination for deal making. Earnings pressure due to both the low level of rates (vs. the shape of the yield curve) and postcrisis regulatory burdens are industry-wide issues. Small banks do not have any viable means to offset the pressure absent becoming an acquirer to gain efficiencies or elect to sell. Many chose the latter. The Fed may have nudged a few more boards to make the decision to sell by delaying the decision to raise short rates until December rather than June or September when the market expected it to do so. “Lift-off” and the attendant lift in NIMs may prove to be a non-starter if the Fed is on a path to a one-done rate hike cycle.- Mercer Capital Bank Watch
The report from Mercer Capital report says that” pricing in terms of the average price/tangible book multiple increased nominally to 142% in 2015 from 139% in 2014. Our average holding trades for 94% of book value and the current buy list is priced at an average price to book value of about 81,4% of book value. That’s about 75% below the current average multiple right now.
We returned 18.07 in the main portfolio last year wth 8 takeovers after having 10 in 2014. Out 14 sold holding since inception have averaged a total return of about 60% from the original purchase price. This is opportunistic value investing at its finest. We have banks that need to buy, banks that need to sell and this creates the extraordinary opportunity I call the Trade of the Decade.
Click here to take advantage of this opportunity to get all three letters for 20% less than you would normally pay for Banking on Profits alone, Use coupon code bop3r.