Sheshunoff Consulting + Solutions

We just heard that the FDIC is planning to cluster- package- several failing banks to get rid of the dead wood. The package of banks will be in a particular geographic area and sold to one buyer in a single transaction.  This was a topic of discussion at the Texas Bankers Association’s Community Bank Owners Forum mid February.

The idea appears to favor large banks and private equity firms. After all, what other organizations have that kind of cash available? You have to wonder: how does anyone manage a “cluster” of banks that have nothing else in common other than their geographic location?

Is it kudos for large banks and private equity firms? It sounds like an operational and organizational nightmare! Packaging disparate organizations with different core systems, organizational styles, functional areas, cultures, and so on illustrates the difficulties these acquirers might inherit. But kudos for large banks and private equity firms when they hold on for a while and then resell the cluster for parts. It will be fascinating to observe the direction the acquisitions and subsequent sales take.

From the FDIC’s perspective, the packaging makes financial sense. But how does this affect community bankers, consumers, small businesses?  It could be that smaller banks that were contemplating acquiring less healthy or failed banks will probably be precluded from doing so.  As a consequence, they will undoubtedly lose some market share. On the other hand, perhaps some customers would migrate from the newly formed large “cluster” bank, to a local, surviving community-based bank.

And finally, how will this impact small businesses? Businesses that still have established relationships with healthy community banks will probably remain where they are.  Newly formed, larger banks, however - the aftermath of the “cluster” effect- tend not to be too small business friendly. This could potentially hurt some small businesses and make it that much more difficult to get funding.