With a dim outlook, banks expect more industry consolidation

February 13. 2012 3:00AM

With a dim outlook, banks expect more industry consolidation

For the past several years, the banking world has been abuzz with talk of a new round of consolidation through mergers and acquisitions, with din growing louder as small community banks face tough decisions about their futures because of the need to comply with the costs of new regulations.

“The M&A is certainly something that a lot of investment bankers have been hoping would happen sooner, and obviously they’re a little premature in their expectations,” said Chris Martin, president and CEO of The Provident Bank.

But as the banking sector faces the challenges of a flat yield curve for interest-bearing investments and demand for higher earnings, in addition to pressures of regulatory fatigue, buyers and sellers might just be putting together more deals in the near future, bankers say.

“I definitely think there will be more M&A in the banking industry, and I think it’s going to result from a lack of the ability to grow revenue, based on the economic environment that we’re in,” said Thomas X. Geisel, president and CEO of Sun National Bank. “Your bottom line is shrinking, because your expense base is going to have to go up because of regulatory costs.”

Bank and holding company valuations have dropped from their heights of last decade, but boards of directors and management teams will have to decide whether possible sale prices can weather downward pressure along with lower revenues and higher expenses, Geisel said.

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