The dog days of summer are upon us. Here in Central Florida we are at the point where the dog gives me that “You are a special kind of stupid aren’t you?” look when I try to interest her is a midday walk and the late afternoon weather is not so much rain as a mini apocalypse. Up north the hedgies, bankers and brokers have all taken off for the Hamptons or the mountains to escape the joy that is Manhattan is August. Best of all In DC Congress is out of session and therefor incapable of doing anything stupid until they return in early September.
Not to say that keep the government from doing stupid things. There are several branches of government and the executive branch has stepped up to fill the void this week. The White House Council of Economic advisors released a report this week that concluded that “"community banks have recovered strongly from the financial crisis and have remained healthy in recent years as Dodd-Frank financial reforms have been implemented.” The report also says “this issue brief shows that community banks have remained strong as Dodd-Frank reforms have been implemented. ”I found the report fascinating as every banker I have talked to has told me that Dodd Frank is an issue and it has raised their costs. Some deal with it better than others but it’s a he expense for all of them. The study by the White House egg heads says Dodd Frank is not a problem while this running the businesses say it is. I am going to favor the feet on the ground over the eggheads on this one.
The American Bankers Association President Rob Nichols was quick to issue a statement. He said “There is a serious disconnect between this report and the daily reality for America's hometown banks and the communities they serve. The 1,708 community banks that have disappeared since July 2010 would be best equipped to speak on this topic — except they can't. “The more than 24,000 pages of proposed and final rules bely the idea that Dodd-Frank had no impact,” he said, adding that “the rules intended for the largest banks are now considered ‘best practices’ for all banks, compounding the misery for smaller banks. Arbitrary size thresholds are stopping community banks from growing because of the added regulation, thus limiting the services they could provide.”
Republicans on the House Financial Services Committee went one step further and released remarks form actual bankers who have to deal with the costs and time suck of Dodd Frank. The bankers were in direct opposition to the White house report. Dale Wilson the CEO id First State Bank of San Diego said ““Managing this tsunami of regulation is a significant challenge for a bank of any size, but for a small bank with only 17 employees, it is overwhelming. Today, it is not unusual to hear bankers—from strong, healthy banks—say they are ready to sell to larger banks because the regulatory burden has become too much to manage. Since the passage of Dodd-Frank there are 80 fewer Texas banks. These banks did not fail. Texas has one of the healthiest economies in the country , we call it the Texas miracle. These were community bankers, and I have talked to many of them personally , that could not maintain profitability in an environment where the regulatory compliance costs are increasing between 50 and 200 percent.
David Williams, Chairman and CEO of Centennial Bank put it this way, ““In recent years, Centennial Bank has experienced a sharply increasing regulatory burden. The nature of our business has changed from lending and investing in our communities to compliance with ever-changing rules and guidance. In the past 10 years our compliance costs have grown from approximately five percent of overhead to 15 to 20 percent today. I believe this increase in regulatory burden has contributed significantly to the decrease of 1,342 community banks in the U.S. since 2010.”
Bill Isaac is a former FDIC Chairman and current Chairman of Fifth Third Bank was pretty emphatic in his remarks. He said ““The bigger banks can absorb it, the smaller banks can’t. I would not be surprised to see half of the community banks in this country go out of business if we don’t give some relief from Dodd-Frank for them. I think that Dodd-Frank is a terrible piece of financial legislation. It didn’t address any of the causes of the crisis that we just went through. It won’t prevent the next crisis. It heaped volumes and volumes of regulations. It’s hurting the people who need the money the most. It’s hurting small business. I think it is impeding economic growth.”
It is clear that the current administration has no intention of rolling back Dodd-Frank. A Clinton Administration is unlikely to take up the case either. Should Trump win he may take it up but he won’t be able to pass anything through a hostile Congress. The continuing and growing costs of compliance is going to reinforce and accelerate the consolidation trend in community banks across the country.
Don’t forget to put yourself in a position to profit from this trend. The deals will be done and the profits will be pocketed. The only question is how much of it goes into your pockets. Becoming a member of Banking on Profits will help make sure you benefit from the ongoing, accelerating bank consolidation trend here in the United States.
You do have to act now to join. Because we deal with a lot of smaller stocks we have decided to limit the number of members to make it easier for all of our member to buy these little banks and share in the outsized profits. We are going to accept 30 new members and then close this product to additional members.
Those that join now will get 50% off the usual price as I want to get this done and closed so I can focus on picking stocks and not marketing. That’s 50% off for the life of your subscription not just the first year. You also get the monthly Community Bank Stock Investor every month free with your Banking on Profits membership.
The money will be made in community bank stocks as M&A picks up. The only question for you is are you going to join us on this profit rich adventure in community bank stocks? Click here to join Banking on Profits at 50% off for life and a free subscription to The Community Bank Stock Investor. Use coupon code 50OffBoP.
Outside the community bank space I am maintaining a more or less buyers strike. At 25 times earnings that have declined 5 quarters in a row and trading at all-time highs I am content to own what I have and build cash. There is plenty to keep me busy in the meantime as 13f filings are starting to flood in, we have pennant race baseball as my Orioles pitching has gotten dramatically better as our bats fall mysteriously and suddenly silent. If we get it all working together we will be in this thing o the end with a pretty good chance to win it. My Kindle is loaded with great reading material and there are some great new releases on the schedule. Of course we have the Olympic Games right now and the high comedy and media circus that is the current Presidential campaign to entertain as well.
Have a great week everyone.
When it comes to buying community bank stocks at bargain prices its best to follow the advice of George Gershwin and