“Steps to buying a bank”
The two worst strategic mistakes to make are acting prematurely and letting an opportunity slip; to avoid this, the warrior treats each situation as if it was unique and never resorts to formula, recipes or other people’s opinions.
In such circumstances where economic stability has to be regained in the country, many banks and financial institutions are being taken over. Consolidation is the name of the game. Weaker players are weeded out and the stronger are becoming stronger. Keeping in consideration all the hidden values of bank including its charter, the startup cost of a De Nova bank, De Nova status; it is becoming increasing common for the investors to acquire a bank rather than set up one. The multiples are low; in fact banks are going around core capital.
Some of the basic common steps to buying a bank are laid down beneath. For sure, the biggest hurdle is finding the right one. Business Credit Funding for sure can help in this regard. Business Credit Fundingwill help you find and identify the right bank, thrift, with the right charter. Few basic criteria come into being after recognizing the bank. This firstly includes making an offer sheet which contains all the basic terms that are required for diligence.
Secondly, employing a law firm once offer is accepted that has enough experience of similar cases is another important step. This would aid in making a definitive agreement which will go a long way during diligence process. Moreover, the law firm would be able to put across few mandatory questions like:
- If the bank space is on lease or its own? What are the terms of lease in case it is rented?
- Provision of three years financial statements that are audited.
- Provision of terms of rates, types and maturity of loan.
- Regarding deposit, the type, maturity and rates of breakdown.
- The current management and board of bank. State of organization, type of organization.
- Type of charter, State, federal, national
- Customer’s brief description and even the shareholders’ list.
- Analyzing the Capital, Management, Asset, Earning, Sensitivity and Liquidity as far as the market risks are concerned. (also known as CAMEL)
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Once the Definitive Agreement is accepted, the money can come into being. The buyer is required to take a regulatory approval. This should be done within five to ten days of acceptance. In the next stage, the approval of shareholders is mandatory for the seller to take.
The best deals are those which can ensure that the management currently presiding over the bank stays there for another couple of months after closing as well. It may take time but remember that the best deals are those which are made adhering to the fundamentals and hard work.
Robin Trehan
www.keyfunds.com