Bank Notes: March 2023

Recent material developments in the banking industry – namely 2 receiverships and 1 voluntary liquidation of not insignificantly-sized banking institutions – have infused a round of unwanted, knuckle-whitening volatility into the community banking industry. In the immediate aftermath of these events, as many were quick to draw fallacious parallels to the great financial crisis, bank stocks declined sharply while many / most / all bank executives have been hard at work assuaging depositor (and shareholder) concerns. For those who assiduously remember their Greek philosophy – as readers of this space surely do – such events are a blunt reminder of Heraclitus’ take on matters: the only true constant in the universe is change. Olsen Palmer’s interpretation is that these recent events, while headline-grabbing, appear to be otherwise largely benign from a broader perspective at least insofar as they are isolated events that were the result of a unique combination of variables that idiosyncratically manifested at a very limited number of specific banks.

While the policy implications of recent events are beyond the scope of this space, there will be reverberations in the banking industry over both the short- and long-run. For now, we can report bank M&A activity ticked up slightly in February – ahead of recent  events – based on transaction count, though the overall number of deal announcements in 2023 remains tempered. Though, anecdotally, underlying M&A discussions remain relatively active as prospective sellers and would-be buyers alike remain interested in potential transactions. On the valuation front, pricing seemingly largely held up in February as multiples on reported transactions were in-line with recent medians.

Going forward, the ripple effect of recent events will almost certainly keep M&A somewhat tempered over the immediate term. However, on a longer-term basis, in the wake of recent events, the banking industry is likely on an even clearer path toward an elevated period of consolidation in the quarters and years ahead due to a host of variables, not the least of which is the continuing tightening of balance sheet liquidity positions.

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