Small banks lead in buyouts
By Richard Newman, The Record (Hackensack, N.J.) | |
McClatchy-Tribune Information Services |
In the banking sector, however, the days of such mega-deals seem like a bygone era with regulators less open to the idea of big financial institutions getting even bigger. JPMorgan Chase,
Big bank deals aren't happening in
But it's a different story in community banking. The merger Tuesday of
In
In May,
"[The community bank merger-and-acquisition market is] a lot more active since the fourth quarter of last year," said
"It's hard to say whether there is going to be a wave," Rave said. "But banks are realizing they need some sort of critical mass to succeed these days."
"Today a bank needs at least
With
The financial crisis and housing market collapse were particularly hard on small banks. More than 800 small lenders, those with less than
In
Nonetheless, the banking sector in
Stock is the main currency of bank mergers, and share prices have risen, giving potential buyers more purchasing power. In the past 18 months the Nasdaq Bank Index, which includes most of
In recent deals, buyers have been more likely to pay a premium above the sellers' market value, said
The rising cost of regulatory compliance and slim profit margins on lending in a low-rate environment are pushing some community banks to seek merger partners, Mecredy said. Banks have had to dedicate more staff hours to regulatory compliance and, in some cases, hire outside professionals to help them stay in line with the new rules.
"They have to get bigger to offset the cost of doing business," Mecredy said.
"The regulatory burden contributes to the trend toward consolidation as smaller banks work to control costs and to survive within a highly regulated industry," he said.
Lipkin, chairman and chief executive officer of
Lipkin said in a phone interview Wednesday that more and more small banks will likely sell themselves to larger companies in the months ahead because of high regulatory compliance costs that can include higher-priced insurance from the
The Patriot Act of 2001, which expanded the Bank Secrecy Act, an anti-money-laundering law, requires financial companies to closely monitor transactions for possible links to terrorists. The Dodd-Frank regulatory reforms of 2010, passed by
"The regulatory cost is a real burden to banks' operations," Lipkin said, adding that a regional bank such as Valley National, with
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