Q. What will the merger and acquisitions environment be like for banks for the rest of 2009 and early 2010?
A. The environment for bank mergers and acquisitions will continue to be interesting and active. Most of us involved in the banking sector expect to see continued problems, increasingly focused on commercial real estate. These problems will make for acquisition opportunities, with and without government assistance. Concurrently, private equity continues to push at structures that would make their involvement in the industry more attractive, and the Fed seems willing to continue its work on interpretations that would attract private capital to banks. There is also the recently reported situation where organizers of proposed de novo banks are being told to find an acquisition candidate. The regulators seem inclined to limit the supply of charters in an attempt to increase demand for existing banks, which is probably a wise course of action.
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What is the main challenge of trying to pull off a bank merger and acquisition transaction in the current environment?
More than ever before, there is heightened pressure on due diligence. Given the current economic situation and forecast, there seems to be confidence that things may not continue to deteriorate in the overall economy. There are, however, continued concerns that bank balance sheets may not have completely stabilized, and that problem assets may be out there still waiting to be recognized.
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What is the biggest challenge that banks and insurance companies face from a regulatory perspective in the current environment?
The biggest challenge for banks and insurance companies in the current environment is dealing with uncertainty. Until Congress and the Obama administration have announced a definitive shape for the new structure of federal regulatory agencies, and have identified changes to be made in assessing the health of financial institutions, guiding their lending and other business practices, and decided how far to intrude on compensation practices, these industries will continue to be hampered in pursing new business opportunities. Another area of particular concern in the current environment is data security. Breach incidents continue, resulting in fines, damages and other costs. Despite all the press surrounding this area, a recent survey showed that data security is not yet a high priority at the highest levels at most companies. On top of all that, Massachusetts has set a new regulatory standard for data security requirements that will effectively be a de facto national standard, and may well become an actual national standard as other jurisdictions follow suit.
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You’ve recently been named to the American Bankers Insurance Association’s board of directors. What will you be doing in your new role?
It was an honor to be elected to the ABIA board of directors. The ABIA is the leading advocate for banks offering insurance products and services. Edwards Angell Palmer & Dodge has been very active in this particular space, on behalf of clients in both the banking and insurance industries, for many years. It’s a tough time for trade associations, given budget cuts for conferences and other activities, so it was particularly gratifying to participate in the successful ABIA annual conference held last week in D.C, and to see the great, continued support the ABIA enjoys from its loyal membership. There is only one reason for that: the ABIA is very effective in serving its membership. As a Director, I will work hard to ensure that the ABIA continues to be responsive to the needs of its membership in representing their interest before legislators and regulators and providing timely, practical programming.
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