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Financial Institutions: Fourth Quarter 2012

Deloitte Corporate Finance LLC


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This quarter’s Financial Institutions Update, produced by Deloitte Corporate Finance LLC (DCF), summarizes recent transactions within this industry along with information on active buyers, current transaction valuation multiples and an overview of the public market’s perception of the industry.

Highlights include:

  • EPS/organic revenue growth challenges continue to persist.
  • Net interest margins are hampered by low interest rates, tepid loan growth, and borrowing costs at floor like levels.
  • Capital and liquidity pressures are significant due to increased regulatory scrutiny and financial reform.
  • While banks are recovering from losses suffered during the crisis, many have yet to earn back their cost of equity. Increased capital requirements combined with earnings growth challenges will likely make it more difficult for the sector to generate returns above the cost of equity without substantial consolidation.
  • Transaction multiples are improving as sales of stronger banks are starting to materialize.
  • Buyers are looking to further diversify their business mix, improve competitive positioning within existing markets, and increase attractive demographics. Buyers are also looking to create economies of scale to absorb the costs of a heightened regulatory burden.
  • Over time, consolidation will likely rationalize the playing field and drive increased investor demand.
  • Large banks are rationalizing their branch networks by exiting non-core markets in an effort to reduce operating costs.
  • Smaller banks have been able to acquire branches sold by larger banks at low deposit premiums given the low interest rate environment.
  • A resurgence of non-depository acquisitions has emerged as banks search for higher yielding assets.
  • Banks are rebalancing their capital structure towards stronger forms of Tier I Capital.
  • A new normal has set in for valuations across the banking industry, which includes lower returns on tangible equity prompted by higher capital requirements and reduced earnings power.

To read more, download the Financial Institutions Update.

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