Manatt, Phelps & Phillips LLP
United States: Financial Services Capital Markets and Mergers & Acquisitions: 2022 in Progress
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2021 is in the books…another eventful year on so many different fronts. For financial institutions, it was an eventful year, with the various government appointments taking on new importance in the day-to-day life of banks. Below, we’ve shared our top five takeaways of 2021 and what to expect in 2022.
1. Mergers and acquisitions are a big question mark. The bank merger market has been very active in 2021, including some very large transactions involving the ongoing sales of Bank of the West and MUFG Union Bank. Community and regional banks have linked up in order to achieve economies of scale and better compete with other banks and fintechs. But some big question marks have been thrown into what has otherwise been relatively smooth for mergers. On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the U.S. Economy. The order includes a general recommendation that the Attorney General, in consultation with the heads of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, review current practices and adopt a plan within 180 days for the “revitalization” of bank merger oversight to provide deeper scrutiny of mergers. In his companion comments At the executive order, the president noted that the United States had lost 70% of the banks that once populated the country over the past four decades and that federal agencies had not formally rejected a request for a bank merger in over 15 years old. Additionally, he cited increased consumer costs, credit access restrictions, and harm to low-income communities as direct by-products of bank consolidation. This effort, coupled with the departure of Jelena McWilliams following attempts by Democratic FDIC board members to force over the bank merger law, means that at the very least big bank mergers run real risks of not being approved in a timely manner. . Whether this possibility will carry over to smaller acquisitions is an open question. At the community bank level, higher interest rates should improve margins and increase stock prices to be used as bargaining chips in acquisitions.
2. The debt market won’t be as hot in 2022. While low interest rates have prompted many banks and bank holding companies to take on debt as “just in case” capital to cushion their overall capital levels, the rise in interest rates associated with the fact that most issuers who needed a capital cushion have already tapped into the debt market (and mainly subordinated debt) means that the debt market will not be as hot in 2022 as it was in 2021. Look for more common equity capital raises in 2022, but at slower levels than what we’ve seen in the debt market.
3. Fintech partnerships with banks will continue to grow. We anticipate continued improvements in bank/fintech partnerships over the coming year, as well as an inevitable buildup in the fintech space as fintech seeks to evolve in every way possible. Much talk about whether or not we are in a tech “bubble” could bring banks and some established fintechs together, as both seek concrete business models with proven management teams. Fintechs will also have their own challenges obtaining bank charters following leadership changes at banking regulatory agencies, including the Office of the Comptroller of the Currency, where a renewed emphasis on safety and soundness may discourage taking risks.
4. The big resignation can improve the quality of the board. Much has been written about how COVID-19 has caused the “great quit”: employees who change jobs or leave the workforce altogether. While potentially disruptive to employers, high-quality employees with more free time can bring rich experience to boardrooms, where unique skill sets are highly valued and more important than ever. The boards of community banks will probably no longer be made up exclusively of local business owners. Instead, boards should bring in experts with diverse opinions, ages, and backgrounds in technology, data privacy, finance, economics, human resources, and governance. capital management, in addition to traditional professionals. areas of expertise. Different voices add depth to boardroom conversations and ultimately lead to better-run institutions, which improves shareholder value.
5. Invest in talent. Last year, we wrote that the pandemic has taught us that good talent excels even in the most difficult of circumstances. People who can adapt and find new opportunities to drive growth, even in unprecedented times, are essential to the stability, success and growth of an institution. This reality has been further reinforced by the continued dislocation caused by COVID-19 and the “two steps forward, one step back” feeling we all have as we adapt more through challenging times. Financial institutions need to expend resources not only to acquire the right talent, but also to continue to develop that talent so that it thrives in times of crisis and times of change. This type of training involves more than pure expertise in the field. One of the lessons behind the great resignation may not only be that people move from job to job or quit, but that people may well return to the workforce after a long break. Employers should view these potential recruits favorably as rejuvenated employees, many of whom will be older, wiser and more dynamic contributors to a company’s culture. Those talented mid-career and senior professionals who have lived through the ups and downs of previous economic cycles and been shaped by more personal experiences that only age can bring can be among the best resources.
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