Seeking Alpha

Christopher Menkin's  Instablog

Christopher Menkin
Send Message
Christopher "Kit" Menkin is of editor LeasingNews.org (http://www.leasingnews.org/), an internet trade publication for the finance/leasing industry. He has 41 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on... More
My company:
Leasing News
  • Bank Branch Deals Decline,  0 comments
    Sep 30, 2013 2:10 PM

    By Kiah Lau Haslett and Stephanie Deck
    A SNL Financial Feature Story

    Following a surge in recent years, branch deals have declined in 2013 as would-be sellers consolidate and close locations rather than sell.

    Branch deals became one tool that banks, especially money center Bank of America Corp., used to control expenses by focusing growth on strategic markets and exiting noncore ones. But the number of deals has lagged in 2013 and the aggregate amount of physical locations and deposits transferred declined from previous years. At the current rate of deals, 2013 will close about 79 acquisitions, behind 2012 and 2011 and on pace with 2010. One reason is that banks no longer want to shrink their footprints or size and may instead want to consolidate branches rather than sell them and move customer relationships to another bank. Some banks also are not interested in engaging in a branch deal unless significant volume is involved, precluding community banks that would be otherwise interested in picking up a location or two, according to an investment banker who works with community banks in the Midwest.

    Following a surge in recent years, branch deals have declined in 2013 as would-be sellers consolidate and close locations rather than sell.

    Branch deals became one tool that banks, especially money center Bank of America Corp., used to control expenses by focusing growth on strategic markets and exiting noncore ones. But the number of deals has lagged in 2013 and the aggregate amount of physical locations and deposits transferred declined from previous years. At the current rate of deals, 2013 will close about 79 acquisitions, behind 2012 and 2011 and on pace with 2010. One reason is that banks no longer want to shrink their footprints or size and may instead want to consolidate branches rather than sell them and move customer relationships to another bank. Some banks also are not interested in engaging in a branch deal unless significant volume is involved, precluding community banks that would be otherwise interested in picking up a location or two, according to an investment banker who works with community banks in the Midwest.

    The lack of branch deals could force community banks into the arms of each other, or at least, a nearby competitor in a desirable market with complementary services and strengths. Renninger suggested what he called "merger of unequal's" for banks that have illiquid stock that find themselves unable to acquire branches in markets where they would like to expand.

    Bank of America leads SNL's sellers list for branch deals, and acquirers of its locations lead SNL's buyers list. The continued divestment of 178 branches since March 2012, with 118 locations in six deals in 2013, is part of its expense reduction program called "Project New BAC" and has been accompanied by staff cuts. The bank is planning on reducing its branch count by 750 in total.

    (click to enlarge)

    Having turned mergers and acquisition into a line of business, Old National Bancorp prefers to do a whole bank deal but appreciates the distinct advantages of branch deals, said Jim Ryan, Old National's executive vice president and director of corporate development and strategy. Old National's deal for 24 Bank of America NA locations, announced Jan. 8, helped the bank rank second for acquisitions year-to-date, according to an SNL analysis. The deal included $778.8 million in deposits and $7.7 million in loans and closed in July.

    Ryan said that typically, while whole-bank purchases are profitable more quickly, branch deals are still faster than a de novo expansion in the current environment. Branch deals recently have added mostly liabilities with few and select assets along with the deposits, but Ryan said the bank believes a core deposit franchise can be leveraged through hiring or retaining relationship managers to grow assets in new markets and is important to building a successful community bank. He added branch deals also send "a really good message" to the town the branches are located in because the announcements lack cost-saves through job cuts.

    "It's really about investing: You don't have to worry about the messaging to explain the cost-saves traditionally associated with a whole bank deal," he said. "Our message is very positive to the folks in Michigan and northern Indiana, which was we want to invest in these markets and grow and expand them."

    Buying branches also avoids duplicate infrastructure and allows a bank to handpick locations it is interested in entering or growing, as opposed to acquiring all locations in a whole-bank deal and taking on less-appealing ones, said William Mayer, a partner in Goodwin Procter LLP's Financial Services Group.

    "You can be a lot more surgical by buying branches than you can by buying whole banks," he said.

    He said banks will often choose to consolidate existing branches rather than selling if one has failed to gather enough deposits to justify the expense of keeping it open, allowing it to be a true expense reduction.

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To Christopher Menkin's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.