With Salem Five recently taking over Stoneham Savings Bank; and United Security Bancshares (NASDAQ: USBI
) and Bank of the Carolinas (NASDAQ: BCAR
) showing strong volume, mergers and acquisitions activity appears to be heating up for small cap regional financial institutions.
Many takeovers have already taken place in this sector. In New England, for example, East Boston Savings Bank took over Mt. Washington Cooperative Bank in 2010. Middlesex Savings Bank acquired Strata Bank in 2009. And in May of this year, Webster First Federal Credit Union took over Saugus Federal Credit Union. In addition, People’s United Bank (NASDAQ: PBCT
) bought Butler Bank in Lowell after it was seized by regulators a year ago. These transactions are responding to an economic and financial environment that is highly conducive for small cap bank mergers and acquistions.
Overall, interest rates are low. Most likely, interest rates will remain low into 2013. This results in funds being cheaper to borrow to finance a takeover. With the Federal Reserve's easy money policy, there is ample cash for purchasing a new entity: over $2 trillion is now resting on corporate balance sheets. And with the economic recovery, balance sheets are stronger, so buyers have more attractive candidates to acquire. This year should be a record year for mergers and acquisitions, with about 3000 projected.
Despite this economic and financial recovery, the banking sector is still weak. It has been the poorest performing group in financial markets for 2011. Money center banks such as Bank of America and Citigroup have still not recovered from The Great Recession. This depresses share prices for all banks. From this, many small regional banks have very trempting share prices.
In addition, bank takeovers are easier than most. Factories do not have to be moved, assembly lines do not have to be retooled, dealerships do not have to be revamped. There is no union opposition. The industry is so heavily regulated that all banks are close to the same standards in many key areas. Many banks are also created with being bought out as the exit strategy by the founders. Therefore, mergers and acquisitions for small cap regional banks flow smoothly and efficiently. The takeover will be announced on Friday afternoon and the doors of the bank with the new name open for business first thing Monday morning.