How should Texas financial institutions grow? This was one of the key topics of the Texas Bankers Association’s Annual Strategic Opportunities M&A Conference. While many means of growth were discussed, mergers & acquisitions (M&A) was highlighted. Why?
“5th Texas Banking Conference”
One of the key elements of the banking industry is that when one firm fails, it is usually merged with a healthy bank. This was re-affirmed in 2008 with Bear Stearns and Lehman Brothers. Banks are failing all the time.
The NexBank President and CEO John Holt was a panelist for the Texas Bankers Association’s 5th Annual Strategic Opportunities and M&A Conference, which ran from November 6 to 8, 2017. Was this anticipating some potential changes in Mergers & Acquisitions (M&A) regulations?
“Fed Mergers & Acquisitions Rule Change”
Interestingly enough, the Federal Reserve loosened M&A rules on March 17, 2017. Whenever an American bank becomes insolvent, their assets are “received” by the Fed, as part of the FDIC insurance program. The Fed will then determine the bank’s recourse.
Most banks are merged with others, but a few have failed, including the “New York Community Bancorp’s bid for Astoria Financial and Investors Bancorp’s bid for The Bank of Princeton.” These failed due to the “failure to obtain regulatory [Fed] approval.” The Fed’s March 2017 ruling made it so that “a merger that creates a bank with total assets of less than $100 billion is not a threat to the financial system.” The previous threshold had been $25 billion.
As of December 31, 2016, NexBank assets were at $4.6 billion. Therefore, it would probably qualify under the old rules during a merger or would need to merge with a larger bank with at least $96 billion of assets to elicit close Fed scrutiny.