By Ray Birch
ROYAL-OAK, Mich.—With seven credit union acquisitions of banks during 2017, one analyst is forecasting that the number in 2018 should be even higher as the result of several trends.
Michael Bell, attorney and counselor with Howard & Howard, told CUToday.info that merger and acquisition activity on the bank side and greater awareness by banks of CUs as buyers could drive the number of these deals higher. Bell has been part of 20 CU/bank deals, including three mergers of a bank into a credit union.
“I expect 2018 to show increased activity in CU acquisitions of banks,” said Bell. “I think on the bank side, merger and acquisition activity is increasing, which is a natural opportunity for credit unions to buy more banks.”
Bell said that some of the reasons for the increase in bank M&A activity is selling prices have rebounded well from depressed levels set by the recession and that smaller banks are facing difficulties.
“Smaller banks are realizing they need to get better or sell,” Bell said. “I am currently working on 20-plus opportunities now, and I expect many of them to come to fruition this year.”
Across The Nation
Bell said the announcements of credit union acquisitions of banks this year will come from across the nation, but a majority should come from the Southeast and upper Midwest.
“(It’s) simply due to the sheer number of banks in those areas,” he said. “Look at a map and you can see the concentration of banks in Wisconsin, Illinois and Minnesota, and in Florida, Georgia and Alabama.”
What may be the biggest change in 2018, asserted Bell, is that more profitable banks will sell to credit unions. Since CUs began to buy banks around 2011, with Michigan's then $1.6-billion United FCU acquiring $81-million Griffith Savings Bank in Indiana, the majority of the deals have been with banks that were losing money. But in the past year more deals have been struck with profitable banks.
“You will see that this option works for banks at both ends of the spectrum. You should see purchases of banks that are not profitable and looking for a way out, and you should see purchases of banks that are very profitable and looking to capitalize on their success and cash in,” said Bell. “If you are a profitable bank pricing on these deals is up.”
Bell said that profitable banks have incentives to include a credit union buyer.
“There are certainly benefits to having more potential buyers and credit unions are a strong cash bidder,” Bell said. “Either they will win or they will drive up the price for the seller.”
Bell said that credit unions have advantages over banks when bidding on a bank due to their basic lower-cost structure and the fact that banks face steep shareholder pressures.
“Bank shareholders carefully scrutinize deals and their costs,” Bell said.
But one of the biggest lessons learned in 2017, said Bell, is that many bank sellers still didn’t know or think about credit unions as potential buyers. He said that’s changing with more credit unions buying banks and the ensuing headlines, and that more banks are talking among themselves about how credit unions are stepping up their interest in bank acquisitions.
“There isn’t a downside to including a CU bidder, and this is starting to resonate with more with banks and it could be a record year for these kinds of deals in 2018,” said Bell.