Market Insights on Regional Banks | The Acquirer's Multiple®

During their recent episode, Taylor, Carlisle, and Gwen Hofmeyr discussed Market Insights on Regional Banks. Here’s an excerpt from the episode:

Gwen: So, there’s, of course, a lot less than there were in the 1980s, the savings and loan crisis of the 1980s. I don’t know if a lot of people know about that, but basically, at the time, the amount of insurable deposits was expanded, I think from like– I can’t remember. From $80,000 to $200,000. It just created a wave of really, really unscrupulous lending which resulted in two-thirds of SNLs going bankrupt over that period. And interestingly, over a thousand bankers were charged criminally during that time.

Jake: Oh, the good old days.

Gwen: Yeah, exactly.

Tobias: Pre-GFC.

Gwen: Yeah, exactly. But the difference is, is that during the Great Financial Crisis, so much of the budget had gone towards Homeland Security, for the Department of Justice. And a lot had flowed out of that kind of investigates and persecutes white collar crime. And so, today, Jamie Dimon would have– I don’t know how many multiples of the budget that would be used by the Department of Justice to investigate bankers. And so, it makes sense. I think white collar crime, actually, is at all-time lows right now, or at least it was last year.

Tobias: Prosecutions– [crosstalk]

Jake: Yeah. [laughs] Prosecutions way out.

Gwen: Let me say executions? [chuckles] Oops. No, I like bankers. Please don’t kill them. So, basically, there are a lot of regional banks in the US. There are over 600 that are publicly traded. And as a whole, there are 4,000 of them. So, there are just a lot of regional banks. As a result, people, generally, for one, just out the gate, they don’t like to analyze banks. They dismiss them as all being black boxes. They all have derivative books that are really difficult to understand.

You never know if it’s just you’re going to wake up one day and all your money is going to be gone, because there’s been a bank [unintelligible [00:18:34] or whatever. And so, there’s a lot of aversion towards analysis of the sector. There’s also a lot of apathy as well that I have personally observed. So, senior managers talking to me and saying, “I don’t analyze US Regional Banks, because there are too many.” And that type of behavior, given that I run a research firm and just to correct you, Tobias, it’s Maiden Financial.

Tobias: What did I say?

Gwen: That’s my company’s name. If I’m running a research firm and I want to produce noble research, I want to produce research with differentiated insights. If I hear investors expressing fear, or dislike, or not wanting to or just aversion to analyzing a particular industry, I get interested.

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