2014 Trends in Bank Mergers & Acquisitions, Social Media & Mobile Banking

802 views

Published on

2014 Trends in Bank Mergers & Acquisitions, Social Media & Mobile Banking; Presentation to Nebraska Independent Community Bankers

Published in: Business
  • Be the first to comment

  • Be the first to like this

2014 Trends in Bank Mergers & Acquisitions, Social Media & Mobile Banking

  1. 1. ©2014 Baird Holm LLP Bank M&A Update Regulatory Developments Jonathan J. Wegner jwegner@bairdholm.com (402) 636-8340
  2. 2. Bank M&A: New & Improved! • Stronger Pricing • Lots of bidders • Clean balance sheets • Excess capital – Stronger loan demand – Fee-based business ©2014 Baird Holm LLP
  3. 3. Regulatory Highlights • Social Media • Mobile Banking ©2014 Baird Holm LLP
  4. 4. Bank M&A Today: To Acquire or Be Acquired? MARKET DRIVERS ©2014 Baird Holm LLP
  5. 5. M&A 2013: U.S. Overview ©2014 Baird Holm LLP Number of Deals % of Banks 2013 248 3.64% 23-Year Hist. Median 292 3.52% 1990-99 Hist. Median 491 3.90% 2000-07 Hist. Median 272 3.06% Source: KBW
  6. 6. Pricing has begun to recover ©2014 Baird Holm LLP
  7. 7. But the market favors size ©2014 Baird Holm LLP
  8. 8. Rising costs reward efficiency ©2014 Baird Holm LLP
  9. 9. M&A drivers in banking today Market Factors • Low rate environment • Strong agricultural income • Weak loan demand • FCS/Credit Union competition • Decline in mortgage revenues • Succession issues ©2014 Baird Holm LLP Cost Drivers • NIM pressure • Rising compliance costs • Basel III capital requirements • Pressure on ROA/ROE
  10. 10. M&A drivers in banking today Sellers turning to market • Sellers presenting cleaner balance sheets – Lower credit marks – Less OREO/Toxic Assets – Higher ALLLs • Pricing coming out of the doldrums • Better performing banks are considering sale ©2014 Baird Holm LLP Buyers are eager to close • Activity is increasing • Interest in M&A is high • Strategic mergers are the latest trend • Buyers are maintaining financial discipline
  11. 11. Bank performance improvement • Strong equity market performance in 2013 – Over $1 billion up 83% (122% since 2011) – Under $1 billion up 37% (60% since 2011) • Pricing differential supported by underlying financial performance • Stronger currency for deals ©2014 Baird Holm LLP
  12. 12. But why still fewer deals? • “Unrealistic” seller expectations • Buyer’s unwilling to close bid-ask spread • But… – Earnings recovery – Lower NPAs & reverse provisions • Sellers unsure where to put proceeds ©2014 Baird Holm LLP
  13. 13. Underlying financials drive divide • Assets: $100 million • TCE: $9 million • Net Income: $850,000 – ROA 0.85% – ROE 9.4% • DCF Value: $9.9MM ©2014 Baird Holm LLP • Assumptions – 5% growth rate – 12% discount rate – 9% capitalization rate • Profile – 110% P/TCE – 11.6x P/E
  14. 14. Bank M&A Today: To Acquire or Be Acquired? LEGAL TRENDS ©2014 Baird Holm LLP
  15. 15. Legal Deal Structures • Broader use of P&A structure – Excluded Assets • Loans • OREO • Correspondent Bank Stock – Escrows – Contingent Liabilities ©2014 Baird Holm LLP
  16. 16. Legal Deal Structures • Traditional stock/merger deals – Special dividend to BHC of excluded assets – Buyers causing sellers to form liquidating LLCs / liquidating trusts • Servicing provided by buyer ©2014 Baird Holm LLP
  17. 17. Buyer Protections • Strong representations & warranties • Affirmative covenants – Board-meeting access – Continuing due diligence • Early involvement with regulators ©2014 Baird Holm LLP
  18. 18. Legal Deal Structures • Key Economic Terms – Minimum Equity and Premium Calculation – Minimum ALLL – AOCI & Unrealized Gain/Loss – Data Processing Termination – Deferred Compensation – Price Protection ©2014 Baird Holm LLP
  19. 19. Current Legal Issues • TARP/SBLF • TRUPS • Bank Stock Loans • Mortgage repurchase obligations • FHLB borrowings ©2014 Baird Holm LLP • HHI/Antitrust • Regulatory orders • BSA/AML Compliance • Fairness opinions (stock deals)
  20. 20. Legal Issues • Asset Quality – Valuation of Investment Securities – Types of Investments – Adequacy of ALLL – Push-down valuation impact on balance sheet ©2014 Baird Holm LLP
  21. 21. Legal Issues • Post-Closing Protections – Indemnification – Escrow/Holdback • 1-3 Years – Non-competition ©2014 Baird Holm LLP
  22. 22. Regulatory Developments SOCIAL MEDIA ©2014 Baird Holm LLP
  23. 23. Defined • Social Media: “a form of interactive online communication in which users can generate and share content through text, images, audio, and/or video.” ©2014 Baird Holm LLP – FFIEC Guidance
  24. 24. ©2014 Baird Holm LLP
  25. 25. JP Morgan’s Epic Twitter Fail ©2014 Baird Holm LLP
  26. 26. JP Morgan’s Epic Twitter Fail • The good… ©2014 Baird Holm LLP
  27. 27. JP Morgan’s Epic Twitter Fail … the Bad… • Did you have a specific number of people’s lives you needed to ruin before you considered your business model a success? #AskJPM • I have Mortgage Fraud, Market Manipulation, Credit Card Abuse, Libor Rigging and Predatory Lending. Am I diversified? #AskJPM ©2014 Baird Holm LLP … and the Ugly • When Jamie Dimon eats babies are they served rare? I understand anything above medium-rare is considered gauche. #AskJPM • Does the sleaze wash off with a regular shower, or do you have to use something special like babies tears? #AskJPM
  28. 28. JP Morgan’s Epic Twitter Fail ©2014 Baird Holm LLP
  29. 29. So Where’s the Love? ©2014 Baird Holm LLP
  30. 30. ©2014 Baird Holm LLP
  31. 31. ICBA Top 50 in Social Media • Engage with your customers. • Popular Posts from MidWestOne – 80%: non-profit event and project information – 15%: financial education – 5%: donations made by the bank and awards received by the bank ©2014 Baird Holm LLP Source: MidWestOne Bank website.
  32. 32. ICBA Top 50 in Social Media ©2014 Baird Holm LLP Source: World Retail Banking Report 2014
  33. 33. Using Social Media Channels • Use Social Media sites for education, customer service, bank announcements, and public service announcements. ©2014 Baird Holm LLP
  34. 34. Using Social Media Channels • Negative feedback will happen • Best practice: Acknowledge negative customer feedback ASAP. ©2014 Baird Holm LLP
  35. 35. Social Media “Command Centers” ©2014 Baird Holm LLP
  36. 36. Social Media Compliance “Likes” • FFIEC Social Media Guidance – Adopt tailored risk management program. – Identify, measure, monitor, and control the risks related to social media. ©2014 Baird Holm LLP
  37. 37. Social Media Compliance “Likes” • Elements of Social Media Policy ©2014 Baird Holm LLP • Governance structure • Policies and procedures regarding the use and monitoring of social media – Methods to address risks from online postings, edits, replies, and retention); • Due diligence process, TPSP Management • Employee training program • Oversight process for monitoring posts • Audit to ensure ongoing compliance • Appropriate reporting parameters
  38. 38. Regulations: Not Friendly • Ads/Disclosures – TISA/Reg DD – ECOA/Reg B – FHA – TILA/Reg Z – RESPA/Reg X – FDCPA – EFTA/Reg E – MAP/Reg N ©2014 Baird Holm LLP • Privacy – UDAAP – GLBA – COPPA – FCRA – TCPA • CRA • Reputation Risk • TPSP Risk Mgmt
  39. 39. FFIEC Comments • High Risk – Integrating social media into customers’ online account – Applications via social media portals • Reputation Risk – Comments by social media users – Spoofing/phishing schemes – Consumer complaints/inquiries ©2014 Baird Holm LLP
  40. 40. FFIEC Comments • Guidance does not require financial institutions to monitor and respond to all Internet communications other than communications on sites maintained by or on behalf of the institution ©2014 Baird Holm LLP
  41. 41. Regulatory Developments MOBILE BANKING ©2014 Baird Holm LLP
  42. 42. Going Mobile • Mobile Banking: a system that allows customers to conduct certain financial transactions via their mobile phone or tablet. • CFPB RFI – Mobile Usage & Unbanked – 87% of the U.S. adult population has a mobile phone (61% of these are smartphones). ©2014 Baird Holm LLP
  43. 43. Going Mobile • Check account balances • Receive alerts • Locate ATM/Branch • Transfer money between accounts • Mobile RDC • Online chat • Personal finance tools • Coupons/discounts • Person-to-Person payments • Mobile picture pay • Block card • Order checks ©2014 Baird Holm LLP
  44. 44. Going Mobile ©2014 Baird Holm LLP Consumers and Mobile Financial Services 2014, Federal Reserve
  45. 45. Going Mobile ©2014 Baird Holm LLP Consumers and Mobile Financial Services 2014, Federal Reserve
  46. 46. Going Mobile • Compliance Issues: – Fine Print – T&Cs + Privacy Policy – mRDC ©2014 Baird Holm LLP
  47. 47. Going Mobile: Fine Print • Regs. B, E, M, Z, DD – 2001 Interim Final Rules (rescinded) • Email & 90-Day requirements • Concerns regarding data security, identity theft, and ‘‘phishing’’ – 2007 Rules (E-SIGN) ©2014 Baird Holm LLP • Exceptions for electronic advertising, applications (Regs. B, M, Z, DD) • No “delayed” disclosures (e.g., telephone app)
  48. 48. Going Mobile: Fine Print • Disclosure Formatting Requirements – “In writing” – “In a form that the consumer may keep” – “Clear and readily understandable” • FRB’s E-SIGN Preamble – Federal Register: 72 FR 63462 ©2014 Baird Holm LLP
  49. 49. Going Mobile: Fine Print • FRB: “Conspicuous” ©2014 Baird Holm LLP • Disclosures comply with the "clear and conspicuous" requirement as long as they are provided in a manner such that they would be clear and conspicuous when viewed on a typical home personal computer monitor. • With regard to disclosures subject to specific font size requirements, the disclosures must be provided such that the required size requirement would be met when viewed on a typical home personal computer monitor.
  50. 50. Going Mobile: Fine Print • FRB: “Retainable Form” – The Board believes that creditors satisfy the requirement for providing electronic disclosures in a form the consumer can retain if they are provided in a standard electronic format that can be downloaded and saved or printed on a typical home personal computer ©2014 Baird Holm LLP
  51. 51. Going Mobile: Fine Print • FTC: “Clear and Conspicuous” – Place the disclosure as close as possible to the triggering claim. – Account for various devices and platforms. – Incorporate the disclosure whenever possible. If not possible, make the disclosure clearly on the linked page. ©2014 Baird Holm LLP
  52. 52. Going Mobile: Fine Print • FTC: Hyperlinks – Make links obvious – Label to convey the importance, nature, relevance of linked info – Consistent hyperlink styles – Close proximity to claim – Direct link to the disclosure – Monitoring click-through rates for effectiveness ©2014 Baird Holm LLP
  53. 53. Going Mobile: Fine Print • FTC: Other Best Practices – Avoid scrolling or use text or visual cues to direct consumers – Review empirical research – Respond to technical limitations – Review total environment – Display for sufficient duration – Plain language and syntax ©2014 Baird Holm LLP
  54. 54. Going Mobile: Fine Print • CFPB Remittance Rule – Disclosure requirements with regard to grouping, proximity, font size, and segregation not required for disclosures made through a mobile application – Expect presentation in a logical sequence, that it be clear and conspicuous, and that it be in equal prominence to one another ©2014 Baird Holm LLP
  55. 55. Going Mobile: Fine Print • CFPB “Know Before You Owe” Initiative ©2014 Baird Holm LLP
  56. 56. Going Mobile: T&Cs • Harmonize with Account Agreement • Specific Terms for Functionality – Consent to Contacts/Data Charges – Limits on Usage – Reliance on Information – Disclaimers – Security – Right to Change Terms/Functionality ©2014 Baird Holm LLP
  57. 57. Going Mobile: T&Cs • Online Privacy Policy should be updated to reflect mobile • Structure relationship to reflect terms of service provider agreement ©2014 Baird Holm LLP
  58. 58. Going Mobile: mRDC • Reg. CC warranties do not apply to mRDC • Reg. E – Warranties made to paying bank that item will not be presented twice – Paying bank may choose against which presenting bank to make a warranty claim ©2014 Baird Holm LLP
  59. 59. Going Mobile: mRDC • Federal Reserve proposed revisions – Reg. CC does apply to mRDC – mRDC bank makes warranty to all others that item will not be presented again ©2014 Baird Holm LLP
  60. 60. Going Mobile: mRDC • Risks in mRDC – NSF – Fraud • Forgery • Stolen Checks • Altered Checks – Duplicate Deposit ©2014 Baird Holm LLP • Up to 75% of returns • Up to 6 months to return or more
  61. 61. Going Mobile: mRDC • Mitigating Risks – KYC/CIP • Database verification • Out of wallet knowledge based questions – Verify image based documentary evidence – Track History • Presenter/Issuer • Fraud M.O. – Restrictive Endorsement ©2014 Baird Holm LLP
  62. 62. Going Mobile: mRDC • Mitigating Risks – Track and Limit Usage • Accounts per device / Devices per account • Cards per account / accounts per card • Accounts per person • Accounts per geographic location • Geographic location of usage • Dollars per day/week/month – Manual Review ©2014 Baird Holm LLP
  63. 63. Going Mobile: mRDC ©2014 Baird Holm LLP
  64. 64. Going Mobile: mRDC ©2014 Baird Holm LLP
  65. 65. Going Mobile: mRDC ©2014 Baird Holm LLP
  66. 66. Going Mobile: mRDC ©2014 Baird Holm LLP
  67. 67. Apple Pay ©2014 Baird Holm LLP
  68. 68. Apple Pay • NFC Contactless Chip Card – 220,000 Merchant Locations – Liability Shift: Oct. 15, 2015 • Biometric Authorization – Mathematical representation of fingerprint – Encrypted on A Series chip ©2014 Baird Holm LLP
  69. 69. Apple Pay • “Secure Element” – Holds EMVCo Secure Token – Token substitutes for 15/16 digit PAN – Linked to Device ID for Authorization • Integrated with Passbook – Stores shipping details – Populates for online purchases ©2014 Baird Holm LLP
  70. 70. Apple Pay • Merchant Integration – Visa, MC, DFS, Amex transactions – No new agreements – No fees (except tokenization security) – Acquirers: TSYS, First Data, Vantiv ©2014 Baird Holm LLP
  71. 71. Apple Pay • Issuer Penetration – Big Issuers on Board • Citi, B of A, Chase, Capital One, Wells, Amex – Large Transaction Volumes ©2014 Baird Holm LLP • 84% of Credit Card Volume • 55% of Debit Card Volume
  72. 72. More Information • http://www.slideshare.net/jonathanwegner/ • https://www.linkedin.com/in/jonathanwegner ©2014 Baird Holm LLP jonathanwegner@bairdholm.com

×