Majority of bankers plan to increase deposit share in their marketplace to achieve growth in 2010
CHICAGO, Feb. 2, 2010 – The majority of bank executives (62%) report that their bank is interested in pursuing a failed bank, according to Grant Thornton LLP’s 17th Bank Executive Survey, conducted in conjunction with Bank Director magazine. While 42 percent of bankers say that their bank is interested in being a bidder for a failed bank’s assets or deposits, only 2 percent have already made an acquisition of a failed bank and 7 percent have been unsuccessful bidders.
“The economic downturn and accompanying banking crisis have spurred an unprecedented increase in the number of bank failures, with many of these troubled banks being acquired by healthy banks through FDIC-facilitated acquisitions,” said John Ziegelbauer, national managing partner of Grant Thornton’s Financial Institutions practice. “For qualified banks (generally well-capitalized and well-managed banks), acquisitions of these failed banks present new opportunities to grow aggressively — in asset size and into new markets and geographies — with the potential of significantly reducing the risk of such acquisitions through FDIC loss-sharing agreements. FDIC-facilitated acquisitions basically help create diversification in the marketplace and can provide a competitive advantage for participating institutions.”
In regards to bidding on a failed bank’s assets or deposits, size does matter — with more small banks (46%) reporting that they are interested in being bidders than large banks (36%). In addition, more small banks (21%) report that they are interested in learning more about the process than large banks (15%).
“When you take into consideration that FDIC-assisted acquisitions require an almost immediate turnaround, a high level of banking experience and a significant amount of capital, it appears that larger institutions may be in a better position to execute these deals than smaller banks,” said George Mark, a Grant Thornton Financial Institutions Audit partner. “Larger institutions with greater resources would definitely have an advantage.”
A financial institution’s location also seems to play a part in its interest in acquiring a failed bank. Nearly three-quarters of bankers in the West (72%) and Central (71%) parts of the country are interested in pursuing a failed bank, compared to only half (52%) in the Northeast. Bankers in the West (55%) and Central (52%) regions are also more interested in being bidders than in other parts of the country (44% in the Southeast, 37% in the Midwest and 34% in the Northeast).
Grant Thornton’s Financial Institutions practice has also put together a white paper examining FDIC-assisted transactions, Troubled bank opportunities: What you need to know about FDIC-assisted transactions. The white paper, which will be available Feb. 1, 2010, at www.grantthornton.com/troubledbanks, focuses on: the bidding process, loss-sharing agreements, accounting and tax considerations related to acquiring a failed institution, as well as reporting requirements for acquiring banks.
Regarding the acquisition of a failed bank’s assets or deposits, which statement(s) describes your bank’s position? (Select all that apply.)
|All||Small bank||Large bank|
|We have already made an acquisition||2%||0%||4%|
|We are interested in being a bidder||42%||46%||36%|
|We have been an unsuccessful bidder||7%||7%||6%|
|We are interested in learning more about the process||18%||21%||15%|
|We are not interested in pursuing a failed bank||38%||34%||44%|
Growing in 2010
When asked about growth strategies for the next year, the majority of bankers (75%) say that their bank plans to achieve growth in the next 12 months by increasing deposit share in their marketplace.
“It’s no surprise the majority of bankers are leaning in the direction of increasing deposit share,” noted Mark. “Banks are seeing more opportunities at this time because of the ongoing consolidation in the industry.”
One-quarter of bankers report that they plan to acquire or build additional branches (26%), acquire another institution (26%) or offer additional products (25%) to achieve growth in 2010. The numbers are slightly better than last year’s results: 20% reported that they planned to grow though building additional branches, 22% through acquiring additional branches and 23% acquire another bank or financial institution.
“With one-quarter of bankers reporting that they have no plans for growth for the upcoming year, expansion may not be on all bankers’ minds,” said Ziegelbauer. “Some banks may feel that it is more appropriate to focus on stabilizing operations.”
“I have to say, it’s interesting to see the results of these two questions together,” noted Ziegelbauer. “While a majority of bankers say they are interested in pursuing a failed bank, the data actually shows that only a quarter are actually planning on acquiring an institution — failed or otherwise — in the next 12 months. Clearly there is some disconnect here.”
Which of the following actions do you plan to take to achieve growth in the next 12 months?* (Select all that apply.)
|Acquire or build additional branches||26%|
|Acquire another institution||26%|
|Increase deposit share in your marketplace||75%|
|Offer additional products||25%|
|Offer additional services||19%|
* There was an additional answer option of “No growth planned for the next 12 months,” which received 26% response rate. Those respondents were removed from the table above and the results were recalculated without them.
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About the Survey
Grant Thornton LLP and Bank Director magazine conducted this national survey of bank CEOs and CFOs from Nov. 17 through Dec. 3, 2009, with 246 respondents. Sixty-one percent of the respondents were from small banks (those with less than $500 million in estimated assets at the end of 2009), while the remaining 39 percent were from large banks (those with more than $500 million in estimated assets at the end of 2009). Regarding ownership structure, 37 percent report that they are public institutions, 42 percent are private and 21 percent are mutual. Visit www.GrantThornton.com/banksurvey.
About Grant Thornton LLP
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