This is the second article in a series that highlights current trends in the leading segments in the Financial Services sector as revealed during the RBC Capital Markets’ Financial Institutions Conference. The first article on Asset Management appeared in Valuewalk on September 19.
Analysts Jon G Arfstrom, Gerard Cassidy, Jake Civiello and Joe Morford moderated the banking space and provide useful insights from their discussions with senior management and panelists on Day 1 of the conference.
In his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More
Banking in Chicago
PrivateBancorp Inc (NASDAQ:PVTB) and TCF Financial Corporation (NYSE:TCB)
Both companies said they were focused on organic growth but were considering M&A opportunities in the over-banked Chicago market. TCB is looking for entry into new niche businesses during 2015 and 2016 and considering cross-selling, example auto finance through its branches. In general the loan growth environment was slow, but steady. Commercial line utilization remains a low 40%. In view of the competitive scenario, TCB is building on opportunities within its national businesses of auto, inventory finance and leasing. The better performing sectors in Chicago are manufacturing, health care and technology, from a banking point of view. As asset prices improve, banks are expecting better liquidity in both the commercial and home segments.
On the consumer front, unemployment remains high and spending remains subdued.
Banking – Central
Home Bancshares Inc (NASDAQ:HOMB)
Prosperity Bancshares, Inc. (NYSE:PB)
Wintrust Financial Corp (NASDAQ:WTFC)
All the three presenting companies were bullish on their M&A objectives – given that banks having assets below $1B have become unviable in the current regulatory environment and long recovery period. WTFC had a different take on Chicago, saying the recovery would be through a slow consolidation rather than a wave of deals. Loan growth could be better but is improving in areas such as Florida (for HOMB) and Texas (for PB). Regulatory costs have become prohibitive.
Citigroup Inc (C): Too big to fail banks
Gene McQuade, CEO presented. He pointed to the metamorphosis of the banking industry from a “branch and checking industry” to distributed banking through the Internet and mobile. Commercial lending is no longer simply making loans and collecting on them – it is now making and distributing loans.
The regulatory environment has become more onerous by several orders of magnitude, but the industry will likely adapt. With the improved capitalizations in banks, worries about ‘too big to fail’ are exaggerated.
Banking – East Coast
Investors Bancorp, Inc. (NASDAQ:ISBC)
Boston Private Financial Hldg Inc (NASDAQ:BPFH)
Provident Financial Services, Inc. (NYSE:PFS)
The economy is doing well within a 50-mile radius in the New York Metro-area, but beyond that, things are slow (ISBC). Improved off-take of high-end jumbo loans, but their pricing left much to be desired; wealth management was still defensive (BPFH). Growth opportunities in C&I and multi-family were excellent provided these were well underwritten (PFS). A lot of the discussions were centered on asset/liability management.
Banking – West Coast
CoBiz Financial Inc (NASDAQ:COBZ)
Umpqua Holdings Corp (NASDAQ:UMPQ)
Westamerica Bancorporation (NASDAQ:WABC)
M&A discussions threw up the old chestnut – size or market concentration? UMPQ was all for size as a competitive advantage while serial acquirer WABC said targeted market concentration worked better for it, allowing for revenue maximization and better management of expenses. COBZ is more focused on organic growth, however.
Expense management was a key priority with the rider that caution was called for – cutting headcount indiscriminately may prejudice future opportunities.
Loan growth strength was visible in pockets depending on geography. Also niche products such as jumbo mortgages, healthcare, asset-backed and structured finance were proving popular. On a general basis, loan offtake in the major metro areas, particularly San Francisco, Seattle, Denver and Southern California doing better.