American bank failures pump up deal flow
Vulture investors like Wilbur Ross and small-town community bankers aren’t alone in cashing in on America’s steady flow of bank failures. While the mergers and acquisitions business remains largely in the doldrums, a coterie of investment bankers and advisers outside the bulge bracket is minting fees from the banking crash.
The biggest winners are acquirers, of course. As banks are seized by the Federal Deposit Insurance Corp at an accelerating pace — 68 through the first week of May — healthy institutions have scooped up good assets at deep discounts, mainly strong deposit franchises that would be expensive to build from scratch.
But the investment bankers and advisers involved in these FDIC deals have also managed to skim off a fair bit of cream. According to SNL Financial, banks have advised on the transfer of $90 billion of deposits in the five quarters through March. Bankers are cagey about what they make on such deals, but it’s likely in the ballpark of 10-15 basis points of transferred deposits, implying fees between $90 and $130 million.
While big banks like Credit Suisse, Deutsche Bank and JPMorgan worked on the biggest deals, smaller folks are the busiest. Keefe Bruyette & Woods, Hovde Financial, Sandler O’Neill Partners and Howe Barnes Hoefer & Arnett lead the way in terms of number of deals advised on, collecting a healthy share of fees. A small Arkansan consultancy — DD&F Consulting — also pops up regularly.
The complexities of FDIC-assisted transactions mean advisers work for their fees. To avoid runs, troubled institutions are put up for auction just weeks before they’re seized by the FDIC. And bankers that have worked on multiple transactions can help would-be acquirers navigate the vicissitudes of FDIC’s auctions. Indeed, the regulator just recently revamped its standard loss-share agreement.
With U.S. bank failures still expected to peak this year, Friday evenings — when FDIC chairman Sheila Bair sends her troops into battle — will continue to be the most lucrative day of the week for at least a portion of the investment banking community.