Last week I attended the SNL Bank M&A Symposium in New York. That may not seem like a big deal to you, but it is to me. I'm something of a banking-conference aficionado, and have been going to them for years. (I've even hosted a few.) And I must say, last week's event ranks up there with the most interesting I've been to.
Which is a bit of a surprise. Other than government-assisted deals, bank M&A activity has been virtually non-existent lately. You'd think, then, that a banking M&A conference in 2009 would be a bit of a snoozer. But this one wasn't. The speakers were (for the most part) a distinguished group who had some interesting things to say.
Anyway, here are my key takeaways from the event:
1. No deals likely anytime soon. Sullivan & Cromwell chairman Rodgin Cohen set the tone for the conference in his keynote address, when he described the current state of the bank M&A market as "dismal."
If anyone should know the state of future bank M&A activity, it's Rog Cohen. Along with Wachtell's Ed Herlihy, he has been Bigfoot among banking M&A counsel for the past 25 years. Cohen's view was echoed by investment bankers from four different firms. One of them described the amount of M&A activity that will end up getting done this year as a "rounding error."
As long as government-assisted acquisitions are available to acquirers, the panelists said, riskier go-it-alone deals won't happen. But over the longer term, everyone agreed that a period of massive consolidation for the banking industry lies ahead. (Then again, these are investment bankers. They always think that.)
The lack of activity has made some bankers downright petulant. KBW's Joe Moeller, for example, complained that buyers' focus on assisted deals was "almost unhealthy." It might be unhealthy for your income, Joe, but it sure won't be for the shareholders of institutions that get to participate in well-structured FDIC-assisted acquisitions.
2. What's needed to get deals going. Cohen had five suggestions for what should be done to get the deal pipeline moving again. All struck me as thoughtful. First, he says, change the accounting rules so the acquirees' assets and liabilities don't have to be marked to some (currently unrealistic) market levels at the time of closing.
Second, permit more favorable treatment of tax loss carryforwards, as was temporarily done to enable Wells Fargo's acquisition of Wachovia and PNC's acquisition of National City.
Third, allow banks the FDIC rates "3" to make acquisitions. (The FDIC rates banks for financial strength on a five-point scale, with 1 being the strongest.) Right now, the FDIC generally only allows 1- and 2-rated banks to do unassisted deals.
