Since returning from the west coast a few weeks ago, I’ve read a number of reports, white papers and yes, promotional pieces that suggest a wide-spread optimism for the financial industry in 2011. With U.S. banks expanding their loans to consumers for the first time in years, and a number of institutions releasing earnings this week (expectations are high for stellar Q4 numbers), one can see why. In fact, JPMorgan Chase may have laid the foundation when it reported a 47% jump in fourth-quarter earnings to $4.8 billion, or $1.12 per share on Friday.
So all of this enthusiasm and excitement has me grabbing as much data and financial information as possible to form my own opinions. While sifting through a number of bank analyst reports, I randomly came across a sentence on Bain's website that I wholly endorse:
...turbulence does present opportunities for savvy players in all regions to out-perform the overall "average" through such means as cost reduction, strategies to gather new deposits and customers, challenging troubled competitors and, where strength exists, targeted M&A activities.
To the management consulting firm's last point, I've been hearing from a number of our investment banking partners speculation that the pent up demand to buy and sell banks might pop this year. If the record numbers of officers and directors signing up to attend our annual "Acquire or Be Acquired" conference serves as an indicator, how right they will be.
For those attending this year's event, expect to hear the case made for buying and/or owning bank stocks thanks to "greater clarity on the regulatory front, historically attractive normalized EPS and book value multiples, and the prospect of a revival in whole bank mergers" (*I can't claim credit for this outlook; the good folks at Stifel Nicolaus offered such an opinion in a recent analyst report entitled "Random Thoughts on Banking: Why Own Banks?").
In a few weeks, more than 600 of the industry's leaders will discuss how recent financial reform (and revised capital standards) has impacted capital structure, valuation and strategic activity. And we'll prepare for what seems inevitable: a coming wave of M&A. So are things looking up? I guess you can say all signs point to becoming cautiously optimistic.