Bank Consolidation: For the money, duh!

Why are small business and retail depositor banks being created? To make money, duh!

Steven Syre, Boston Globe columnist, published an opinion piece today on community banks in Massachusetts that are lining up to go public. Banks rolling out plans for the public market include:

• Beverly Bank, which has four branches and oversees $324 million worth of assets.
• Melrose Cooperative and Pilgrim Bank of Cohasset, which together hope to raise about $45 million.
• The parent company of East Boston Savings Bank, which sold a minority interest to the public in 2008, plans to go all-in by the end of 2014.
• Blue Hills Bank, which customers knew as Hyde Park Savings for more than a century, hopes to raise nearly $240 million by going public.


Taking a company public can have many fundamental and underlying reasons, but (in my opinion) bringing in massive profits is surely at the top of the list. Lots of people make big money in the process of an IPO – including the executives who took the bank public. And a lot of people make big money in the process of M&A – including the executives who took the bank public. A lot of small, regional banks are acquired by larger banks shortly after their public offering, and according to a new analyst report, M&A activity among regional banks is off to a better start this year contrasted with the prior two years. A way for struggling banks to increase shareholder value is to hitch their wagon to the star, serving as a way for management of the local bank to bring in wads of cash. 28 "whole-bank" deals — those in excess of $5 million — have been announced during the first quarter. That compares to 24 during Q1 2013 and 22 in Q1 2012 (Investor’s Business Daily). M&A activity does not drive this, but rather it is a byproduct of a bull-attitude toward the financial services industry. The fact that there are a lot of banks getting ready to go public is an encouraging sign for our economy, and the line forming at the moment suggests that many bankers believe the economy of the next several years will be strong enough to grow and avoid serious loan problems (Boston Globe).


References:

http://www.bostonglobe.com/business/2014/03/31/community-banks-line-public/gkvGKzMtkUxqkZOQrnevfJ/story.html http://news.investors.com/business/033114-695245-regional-banks-manda-activity-rises-in-2014.htm