Bank M&A

Intangible Benefits of FDIC Deals

deal.jpgWhen I attend conferences or speak with investors, everybody wants to know about the financial consequences of doing an FDIC-assisted deal. My bank has done eight of those deals. To be fair, the financial advantages of buying failed banks are the driving force behind the large amounts of institutional capital that has gone almost exclusively to acquiring institutions. Tracking and reporting on progress relative to expectations will continue and it should.

What is becoming increasingly clear, even to a number cruncher like myself, are the intangible benefits that have been realized during this strategy. With many bankers starting to wonder if the opportunity to participate is over, or at least drawing to an end, maybe it’s appropriate to give some airtime to some these intangibles.

Opportunity to be on offense with the FDIC

We all understand the healthy, but defensive, give and take between bankers and regulators. In today’s environment, with so many banks on the FDIC’s problem bank list, the defensive tone is more pronounced.  These deals have allowed us to work offensively with the FDIC, to partner with them in the resolution of our industry’s problems. I am not using the term “partner” lightly here because it is exactly that kind of relationship that they want to foster with acquiring institutions.

This spirit of partnership does not mean that we escape serious oversight from the resolution and supervision departments of the FDIC. As with most successful relationships, though, the congeniality is maintained with consistent communication and a thorough understanding of each party’s goals. More face time with our primary regulator has been very good.

Opportunity to build or rebuild a workforce

Chances are your bank has made some hard decisions over the past few years that would not have been considered during the boom years immediately preceding the current economic period. Most banks, even the super-regionals, have rationalized virtually every expense line and every strategy to ensure that the timing was right and appropriate given the circumstances.

The hardest decisions bankers have had to make relate to staff reductions.  People matter in banking because this is still an industry where customer relationships count.

Not to repeat myself, but this “offensive” strategy has improved the morale of our bank, relieving some of the sting of the staffing decisions. Because of the increase in loan and deposit customers, we have been able to rehire some past employees and transition other idled employees to help manage those assets.  We have been able to build out new divisions and even hire new staff in both line and corporate functions.  And there is something real about the energy that new employees bring to a company, along with new ideas and best practices.

Opportunity to build M&A expertise

How many times have you heard in the last two or three years about the record levels of consolidation taxiing down the runway? It does seem likely to us, given the perception that banks need more operating leverage to counter all of the revenue headwinds (weak economic recovery, new regulations, etc.). The rapid improvement in operating efficiency that investors and boards want to move the needle on earnings is most easily accomplished through consolidations.

For an institution that plans on being an acquirer instead of being acquired, the FDIC deal strategy has been an excellent opportunity to build out an M&A line of business. Obvious divisions here include special assets and our data conversion team. These teams have mastered certain “transitional” functions that are vital to getting us to the next stage.

It is the cultural M&A expertise that has been fine tuned. “Ripping out” the acquired company’s culture with all due haste and replacing it with your own culture seems simple enough. Doing that and still having a team that wears your jersey with pride is more difficult. Our other teams have learned how to “sell” our cultural points (H/R systems, credit administration processes, sales culture) in such a manner that our new employees WANT to follow us.

As I mentioned at the outset of this article, the financial benefits deserve serious discussion.  But these and other intangibles will have their 15 minutes of fame someday. They will impact the bottom line in ways that are hard to quantify right now. 

Dennis Zember