The majority of bank executives (62 percent) report their bank is interested in pursuing a failed bank, according to Grant Thornton LLP’s 17th Bank Executive Survey, conducted in conjunction with Bank Director magazine.
While 42 percent of bankers said their bank is interested in being a bidder for a failed bank’s assets or deposits, only 2 percent have already made an acquisition of a failed bank and 7 percent have been unsuccessful bidders.
"The economic downturn and accompanying banking crisis have spurred an unprecedented increase in the number of bank failures, with many of these troubled banks being acquired by healthy banks through FDIC-facilitated acquisitions," said John Ziegelbauer, national managing partner of Grant Thornton’s Financial Institutions practice. "For qualified banks (generally well-capitalized and well-managed banks), acquisitions of these failed banks present new opportunities to grow aggressively – in asset size and into new markets and geographies – with the potential of significantly reducing the risk of such acquisitions through FDIC loss-sharing agreements. FDIC-facilitated acquisitions basically help create diversification in the marketplace and can provide a competitive advantage for participating institutions."
In regards to bidding on a failed bank’s assets or deposits, size does matter – with more small banks (46 percent) reporting that they are interested in being bidders than large banks (36 percent). In addition, more small banks (21 percent) report they are interested in learning more about the process than large banks (15 percent).
"When you take into consideration that FDIC-assisted acquisitions require an almost immediate turnaround, a high level of banking experience and a significant amount of capital, it appears that larger institutions may be in a better position to execute these deals than smaller banks," said George Mark, a Grant Thornton Financial Institutions Audit partner. "Larger institutions with greater resources would definitely have an advantage."
A financial institution’s location also seems to play a part in its interest in acquiring a failed bank. Nearly three-quarters of bankers in the West (72 percent) and Central (71 percent) parts of the country are interested in pursuing a failed bank, compared to only half (52 percent) in the Northeast. Bankers in the West (55 percent) and Central (52 percent) regions are also more interested in being bidders than in other parts of the country (44 percent in the Southeast, 37 percent in the Midwest and 34 percent in the Northeast).
When asked about growth strategies for the next year, the majority of bankers (75 percent) said their bank plans to achieve growth in the next 12 months by increasing deposit share in their marketplace.
"It’s no surprise the majority of bankers are leaning in the direction of increasing deposit share," said Mark. "Banks are seeing more opportunities at this time because of the ongoing consolidation in the industry."
One-quarter of bankers report that they plan to acquire or build additional branches (26 percent), acquire another institution (26 percent) or offer additional products (25 percent) to achieve growth in 2010. The numbers are slightly better than last year’s results: 20 percent reported that they planned to grow though building additional branches, 22 percent through acquiring additional branches and 23% acquire another bank or financial institution.
"With one-quarter of bankers reporting that they have no plans for growth for the upcoming year, expansion may not be on all bankers’ minds," said Ziegelbauer. "Some banks may feel that it is more appropriate to focus on stabilizing operations."
"It’s interesting to see the results of these two questions together," said Ziegelbauer. "While a majority of bankers say they are interested in pursuing a failed bank, the data actually shows that only a quarter are actually planning on acquiring an institution – failed or otherwise – in the next 12 months. Clearly there is some disconnect here."
