The fourth quarter rally in bank stocks and the Fed’s signal of potential rate cuts in 2024 have many banks questioning if the balance sheet restructuring trend will continue.  Some banks that were planning fourth-quarter transactions chose to pause, focusing instead on how recent Treasury moves might benefit the sell side of the transaction.

That pause has proven fruitful for banks looking to deleverage or shrink their balance sheets. For banks looking to reposition either into new securities or loans, however, the move in Treasurys has had a negative effect on reinvestment income.

With most economists predicting a lower-rate environment, the loss of reinvestment income can offset any improvement in loss position. While the targeted loss is an important component of this trade, the more meaningful benefit is often the income that comes from replacing low-yielding assets put on the books mostly during the COVID-19 years with those that provide more attractive yields.

M&A Considerations
A prospective merger or acquisition provides a unique opportunity to reassess the pro forma company’s balance sheet and reposition the bank for the future. In the current world, this reassessment is often centered on overcoming the challenges and pitfalls related to interest rate marks on the book. Conveniently, all the target’s assets and liabilities must be marked to market for accounting and regulatory capital purposes.

Restructuring portions of a buyer’s balance sheet as part of a transaction may be prudent given changes in rates and the operating environment.  While such restructuring can carry adverse income and capital implications, the enhanced performance of acquirers’ stock post-announcement indicates that market participants have looked positively on thoughtful buyer repositioning.  In other words, a buyer may get something of a free pass to reconsider its overall portfolio if announced as part of a bigger strategic transaction.

The actions banks have taken range from straightforward securities repositioning and whole loan sales or securitizations to sale-leasebacks, bank-owned life insurance restructures or the elimination or sale of entire business lines. In some of the more significant M&A transactions last year, major ancillary transactions were announced.

For example, the 2023 merger between Banc of California and PacWest Bancorp was accompanied by the exiting or running-off of several significant national lending businesses, including lender financing, fund financing and life sciences and technology units.  The pro forma company also raised equity capital from private equity firms to enhance its overall capital position.  In another 2023 deal, Eastern Bankshares obtained capital to support its acquisition of Cambridge Trust Co. by selling Eastern Insurance to Arthur J. Gallagher & Co. for $510 million, nearly equaling the purchase price of Cambridge.  A significant number of other mergers have incorporated more limited repositioning of securities portfolios and/or loan sales to rebalance the interest rate risk and/or enhance profitability and capital ratios.

As merger discussions accelerate, acquisitive banks are likely to incorporate an array of creative capital markets capabilities into their due diligence processes.  While banks have traditionally included securities and capital markets experts on their M&A teams, today it is not uncommon for the team to include whole loan sales, securitization and sale-leaseback professionals as banks look for new ways to achieve their strategic growth objectives.  We expect the inclusion of these capabilities to be a theme going forward.

These dynamics, coupled with the strong desire of management teams to play offense and improve earnings means that balance sheet restructuring will likely remain a focus.  This restructuring wave is likely to be coupled more frequently with acquisitions as M&A accelerates in 2024.


John Roddy

Head of Financial Services Investment Banking

John Roddy is head of financial services investment banking at Raymond James Financial, Inc.  Mr. Roddy has over 25 years of investment banking experience and has completed over 150 capital markets and M&A transactions for depository financial institutions.  Mr. Roddy joined Raymond James in 2016. 


Prior to Raymond James, Mr. Roddy was global head of Macquarie Capital’s financial institutions group.  Mr. Roddy joined Macquarie upon its 2009 acquisition of Fox-Pitt Kelton (FPK), where he led the depository institutions group and was a member of the executive committee.  Before joining FPK, he headed the depository institutions group at Citigroup.  Mr. Roddy began his career in the financial institutions group at Lehman Brothers, where he was managing director at the time of his resignation.  Prior to joining Lehman Brothers, Mr. Roddy was an attorney with a New York law firm and at the Office of the Comptroller of the Currency.  


Elisabeth Vogel

Managing Director

Elisabeth Vogel serves as managing director and head of the Financial Institution Strategy department of Raymond James’ Fixed Income Capital Markets (FICM) division. In this role, Elisabeth is primarily responsible for leading the team responsible for advising the firm’s depository institution clients on fixed income portfolio construction, balance sheet management, and strategies for optimizing financial performance. Elisabeth joined Raymond James as an analyst in the Fixed Income Strategies department in 2006 and was promoted to managing director in 2018. As a recognized leader in depository institution strategy, she regularly works with regulatory agencies charged with overseeing banks and credit unions.