Banker Urges Due Diligence in CU Deals for BoA Assets
Credit unions eyeing branch prospects in Bank of America’s massive unloading of properties across the U.S. ought to be both realistic and wary of any quick fixes in hopes of landing special deals even though “there could be prime locations at discounted book value,” New York investment banker Peter Duffy warned Monday.
Given economic conditions, the opportunities will likely be in real estate – branch brick and mortar – rather than acquisition of account relationships, said Duffy, managing director of Sandler O’Neill.
The fact is, said Duffy, CUs are at a definite disadvantage as compared to community banks making potential bids on what he called “dislocations.”
“Whether a whole franchise merger or branch sales, like that of Bank of America, healthy community banks have access to secondary capital and have seen their base range for insurance lowered,” said Duffy.
But CUs do not have that access “and are unsure of the total cost of assessments over the next 10 years,” said Duffy.
"Most credit union managers tell me they are hesitant to begin spending more on marketing, branching or merger discussions in today’s environment,” said Duffy, considering the unknowns of capital requirements, the NCUA assessments “and no access to secondary capital.”
Nonetheless, “these kinds of dislocations as in the Bank of America branch sale do present opportunities for healthy institutions to find available facilities at price levels significantly below what they were” a year or two ago, said Duffy. The Sandler O’Neill executive suggested CU managers consider making branch acquisition “in the context of their overall strategic plan.”
“A discount to book value” may make a deal look attractive on a valuation basis, he said, but CUs need to consider the impact of both new member acquisition and current member convenience.
Buying a group of branches because of a favorable price “may really not fit into your geography or those markets where you really want to be,” Duffy advised.
He said it is still too early to know when and where BofA will start the sale process as the San Francisco and Charlotte-N.C.-based bank determines which branches should remain based on various factors such as customer convenience.
One CU with recent experience in buying bank branches is the $1.2 billion Royal CU of Eau Claire, Wis., which 15 months ago purchased 11 central Wisconsin facilities including loans of an ailing Madison savings bank.
An executive there suggested CUs contact leading accounting firms, investment bankers and top attorneys in prospective BofA areas before proceeding too far with negotiations.
“You really should contact those CPA firms to find out what really is available, and you do have to be cautious about picking areas where you really want to grow,” advised James Watts, RCU chief investment officer and a former Chicago banker.