Missouri Bankers Association — Highlights from the Annual Convention

June 22, 2009 at 3:55 pm Leave a comment

The 119thAnnual Convention of the Missouri Bankers Association concluded on June 19th in Branson, Missouri.   The turbulent ride of the twelve months since last year’s convention resulted in a gathering that was anything but . . . conventional.  Here are some notable highlights:

  • Barry Asmus, a Senior Economist at the National Center for Policy Analysis, batted lead-off, storming the stage to warn of the downfalls of increased government influence on the private sector in general and the banking sector specifically.  More than anything, Asmus understood his audience, and his message resonated with the bankers in attendance (even if he was a tad long-winded).  We remain, however, skeptical of Asmus’ unstated but palpable desire to abolish government at pretty much every level.
  • The investment banking firm, Sandler O’Neil Partners, L.P., discusses current trends in the M&A and capital markets.  As one might imagine, acquisitions are significantly down and capital is tough to come by.  The investment bankers recommend that banks identify their potential capital hole by running internal “stress tests” similar to those conducted on the 19 largest banks, giving the bank an accurate third party view of their institution.  If your bank needs capital, you should consider raising it during the summer or fall, before the rush to raise capital during the fourth quarter by banks healthy enough to repay TARP clogs the capital markets.
  • President Obama’s White Paper, titled “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation“,  on regulatory reform was released on Wednesday.  (Click here for a summary).  
  • The release of the White Paper coincided with a regulatory panel discussion that included representatives from the FDIC, Federal Reserve, Missouri Division of Finance, OCC and OTS.  Some interesting tidbits of the panel discussion include the following:
    • The Missouri Division of Finance outlined the CAMEL ratings of Missouri banks.  While over 80% of Missouri banks have 1 or 2 composite ratings, 10 Missouri banks have 4 ratings and five have 5 ratings. 
    • We would guess that at least 50% of the one-hour panel discussion centered on real estate collateral appraisals.  Bankers are dubious of their relevance and weary of being hammered on by regulators to obtain updated appraisals, particularly when cash flow projections (of commercial property in particular) are considered by some to be a better evaluation tool.  The regulators conceded the questionable utility of appraisals, but, somewhat apologetically, wouldn’t back off their necessity. 
    • Banks must closely monitor commercial real estate concentrations.  This is a strong correlative link between banks that exceed recommended concentration levels (300%) and those with 3, 4 or 5 composite ratings.
    • As part of the proposed regulatory reform, the OCC and the OTS would be folded into a single federal regulations called the “National Bank Supervisor.”  
    • Participations are a good diversifier for bank loan portfolios if used in moderation.  Banks must be weary of participations where the primary bank is at risk of failure.  If such a bank fails and the borrower has a deposit at the failing bank, the FDIC can offset the deposit against the loan.  That offset work in the favor of depositors of the failed bank and the participating bank will be stuck with a receivership claim.  In short, participating banks must do their due diligence on lead banks. 

The closing remarks of Susan Barrett, the MBA’s new chairwoman, and Art Johnson, the Chairman-Elect of the ABA, seemed to accurately reflect the mood of the week.  The Missouri bankers are optimistic about the future, emboldened by their recent success on the special deposit insurance assessment and ready to stay the course.   It will be an interesting 2009.

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