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Board Cohesiveness During Merger Consideration Process

Bank merger activity is reducing the number of U.S. banks at a rate of about 5% per year. It’s unclear how long this pace of industry consolidation will continue. Investment bankers, who have an interest in the level of activity continuing, are often quick to counsel bank boards of directors that the merger market may never be better than it is right now. Each year, the boards of hundreds of banks decide to heed the advice of those suggesting it’s time to sell.

Image by Gerd Altmann from Pixabay

A decision to sell a bank is one of the two most important decisions a board addresses (the other being selection of the CEO in a succession process). The strength of a board lies in the manner in which it approaches such a decision. Some boards will have gone through a lengthy process of reaching consensus before exploring potential merger opportunities. Others will find themselves considering unexpected merger offers without first having reached consensus. Vigorous debate can be healthy and productive in the process of a board reaching the best decision for the bank and its shareholders. Regardless of the circumstances in which a potential sale or merger of a bank is being considered, it is critical that all board members have access to the same level of information and be able to provide input throughout the process.

When board members believe they have been kept out of the loop on information flow, or they haven’t been adequately involved in considering a course of action, the strength of a board is undercut. Decision making is often adversely impacted as a result. This is particularly true in connection with consideration of the sale of a bank. Throughout the process of a board investigating options and considering strategic alternatives, the board members should have confidence that they are privy to all communications of importance with both professional advisers and potential merger partners.

We have seen far too many instances in which a director, on his or her own initiative and without authorization from the board as a whole, embarks on private outreach to potential merger partners. These directors usually feel justified in such action as a result of frustration with the pace at which the full board is moving or a sense that the CEO is resistant to the idea of selling the bank. Whatever the driving force, such independent action by a director can result in a breakdown in trust among the board and rarely results in a successful merger transaction.

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Open Banking: What are Open APIs?

Open Banking: What are Open APIs?

April 11, 2019

Authored by: John Bush and Barry Hester

This post is the second in a series discussing Open Banking, its implementations, and its implications.  Part 1 is here.

APIs or “Application Programming Interfaces” are everywhere in ecommerce, and they provide the building blocks in the primordial soup of innovations that may stem from open banking. 

Among other roles, APIs provide a protocol allowing one computer system to talk with another.  For example, The Weather Channel (“TWC”) has invested heavily in providing detailed meteorological information and forecasts by region.  TWC could conceivably require people to visit its website as the exclusive way to access this information.  Instead, however, TWC permits some of its information to be accessed automatically across apps, websites, and services and in ways third-party developers can predictably map (e.g., certain tagged data reflects values like “75°F” or “Partly Cloudy”).  TWC has determined such use advances the TWC business plan.  Conversely, the developers of apps, websites, and services have determined using the TWC API is superior to reinventing what TWC has accomplished—or not offering weather information at all. 

Without an API, a third party could create a bot to visit the TWC website and automatically “scrape” the information, but such an approach poses risks.  First, even a slight change to the TWC website could cause the bot to misunderstand which data it is supposed to scrape.  Second, such an approach raises contractual and copyright risks.  See, e.g., Ticketmaster L.L.C. v. RMG Technologies, Inc., 507 F. Supp.2d 1096 (C.D. Cal. 2007) (granting injunctive relief on grounds that defendant infringed copyright and terms of use through automated screen-scraping of Ticketmaster’s site in order to facilitate its own large-volume ticket brokerage).  Third, this conversion step fails to capture the richer, more reliable, and more on-point data TWC is willing to make available via its API. 

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What is Open Banking, and What are its Implications?

This post is the first in a series discussing open banking, its implementations, and its implications. 

“Open banking” is a phrase that has been coined to capture a current theme in financial sector innovation – one that some say is going to revolutionize banking.  For years, banks have given their customers increasing access to account information.  Now, with open banking, the access is opening to the point where customers can potentially obtain financial services in entirely novel ways, and the customer’s expectations of their bank may shift. 

Image by mohamed Hassan from Pixabay

The push to open consumers’ financial data goes back decades.  In the 1990s and 2000s, financial institutions began giving customers online access to their accounts—and instantaneous access to information previously reserved for monthly statements. Card-based transactions gradually shifted away from signed papers with carbon copy receipts to electronic devices.  With rapid access to financial information, debit cards that could immediately draw on bank accounts became more feasible.  Meanwhile, third-party vendors, such as Intuit, Microsoft, and Checkfree, were among the providers who encouraged institutions to go even further by making financial data available in a format that could be imported into their software; their work led to the promulgation of the Open Financial Exchange (“OFX”) data stream format, among others. 

In the past 10 years, the priorities in data exchange have incorporated the agenda of government proponents.  Notably, in 2016, a U.K. regulatory authority required the country’s nine largest banks to allow certain registered third-party developers to access certain customer data.  In 2018, the European Economic Area began implementing the Second Payment Services Directive (“PSD2”), including its goal to provide financial data through a central register.  In the United States, the Consumer Financial Protection Bureau has expressed its view that consumers should have timely, secure, and transparent access to their financial account information and to data sharing opportunities.  During this same time, digitization has accelerated to unprecedented levels in all facets of life and commerce, and data privacy risk awareness and regulation has emerged. 

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In Memoriam: Walter G. Moeling, IV, 1943-2019

It is with a very heavy heart that I write to report that our longtime friend and retired Partner, Walt Moeling, passed away peacefully on Monday night. Walt was at home and surrounded by family, including his wife Nell who has become a friend to many throughout the firm. Nell was Walt’s lifelong best friend and true companion, and is almost as well-known as Walt within the banking community in the Southeast for always being by his side and helping to grow his practice. Walt was important to our group, to the firm and to every person whose path he crossed. He was an incredible mentor to many, including our entire banking team.

Walt spent his entire legal career with our firm, starting out in the late 1960s with Powell Goldstein, an Atlanta-based firm that merged with Bryan Cave in 2009. In Walt’s near 50 years of active practice, he represented banks, thrifts, insurance companies and securities firms nationwide. In recent years he was nicknamed “the Godfather of Banking in the South” by a very prominent banking industry commentator.

Walt was widely recognized for his accomplishments as a leader in the legal field and banking industry and appeared in Who’s Who in America, in the South; American Law; Business and Finance; and as one of America’s Leading Business Lawyers by Chambers and Partners.

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On the BB&T/SunTrust Merger…

On the BB&T/SunTrust Merger…

February 7, 2019

Authored by: Jonathan Hightower

Many of us who are native Southerners sat with mouths agape as we read the announcement of the $66 billion (!) all-stock merger of equals between super regional banks BB&T and SunTrust. Few of us who grew up in Georgia have not been personally impacted by these banks in some way or another. For me, my aunt worked at Trust Company Bank when I was a kid, and BB&T bought a local thrift (Carrollton Federal), making its way into our home market where it remains today. After college, law school barely beat out an offer to work in SunTrust’s commercial lending training program, and BB&T currently holds the mortgage on my home. With all of those ties, I feel somewhat nostalgic when reading that the bank will be rebranded as a part of the merger.

With that said, the real time business implications for all of us are even larger. The day before the merger, my friend Jeff Davis wrote a smart piece ($) detailing the virtues of merger of equals transactions in today’s world. BB&T recently discussed on its earnings call that it was accelerating cost savings initiatives in order to invest more in its digital offerings. With the announced merger, one can assume that the lab for digital innovation of the combined bank (to be based in Charlotte, a bit of a disappointment to the Atlanta community) will make a massive effort to transform the banking experience of the bank’s customers, a truly meaningful segment of the market. We have recently commented that the transformation of the Atlanta banking market is now a reality, and this combination promises to further evolve how many banking customers think of and interact with their banks.

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Blockchain Technology Will Not Disrupt Financial Services Anytime Soon

Twenty venture capitalists gathered in Silicon Valley last week to discuss the impact of blockchain technology, including digital currency, on financial services and venture capital. The 20 VCs represent an equal number of funds, which invest–or are looking for investment opportunities–all over the world, including the third world. They represented a diverse group of perspectives, with some having regulatory experience, some having experience with conventional payment mechanisms and some with innovative mechanisms such as PayPal. Even their disagreements were instructive of the uncertain future of blockchain technology and its various potential applications.

The consensus is that digital currency is entering a nuclear winter. A majority of Initial Coin Offerings made in 2017–perhaps as much as 75%–turned out to be fraudulent and have no value today. Not coincidentally, the vast majority of Initial Coin Offerings originated in Eastern European countries that are home to spam and bot farms…and where there is little, if any, regulatory oversight.

To the extent bitcoins may become a viable, commercial technology for B2B transactions, it is likely to occur in a technology hub in the U.S. or Europe. Those hubs have the talent, the infrastructure and the robust regulatory structures that can be adapted to ICOs and create the trust necessary to make digital currency a positive, viable alternative to government currencies. In fact, the centralization of technology talent in the U.S. is depriving the rest of the world of talent.

The attempts of island states, like Bermuda, Malta, Cyprus, the Isle of Mann, and even Singapore to draft regulations that facilitate the creation of bitcoin issuers on their soil is unlikely to have a significant impact. Nobody who is experienced and seriously intends to build a global digital technology company and change the financial services industry on a global scale will think one can create the necessary large organization on these islands. These islands do not have an ecosystem of sophisticated VCs and do not have a critical mass of talented engineers. The island states are going for broke because they have so little to lose. When and if the technology matures, U.S. companies will step in and crush competitors based in these islands.

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2017 Landscape of U.S. Banking Industry

The U.S. depository industry has continued its path of consolidation, but as of the end of 2017, there are still over 5,600 banks chartered in the United States.  This represents a decline of just under 3,000 charters from 10-years earlier, as mergers, receiverships and a near complete dearth of de novo activity have continued to shrink the number of banks.

As of December 31, 2017, we had 5,679 depository institutions with $17.5 trillion in total assets.  That represents a decline of 243 institutions an increase of $600 million in assets since the end of 2016, and a decline of 2,865 institutions and an increase of $4.4 trillion since the end of 2007.

The four largest depository institutions by asset size (JPMorgan, Wells Fargo, Bank of America and Citi) hold $7.03 trillion (up slightly from $6.84 trillion at the end of 2016).  Those four now represent 40.1% of the industry’s assets, down slightly from 40.5% at the end of 2016; but up from 34.8% ten years earlier.

There are 120 additional banks that have assets greater than $10 billion, holding $7.45 trillion.  Both of those numbers are materially higher than one year earlier; at the end of 2016, there were 111 banks in this category with $6.98 trillion in assets.  The 124 largest banks now hold 82.7% of the industry’s assets.  Ten years ago, there were 119 institutions with more than $10 billion in assets, and they collectively held 77.6% of the industry’s assets.

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Data Privacy and Security Handbook – 2018 Edition

Bryan Cave Partner David Zetoony has just published the 2018 Edition of the Data Privacy and Security Handbook: A Practical Guide for In House Counsel.

Five years ago few legal departments were concerned with – let alone focused on – data privacy or security. Most of those that were aware of the terms assumed that these were issues being handled by IT, HR, or marketing departments.

The world has changed. Data privacy class action litigation has erupted and data security breaches dominate the headlines. It is now well accepted that data privacy and data security issues threaten the reputation, profitability, and, sometimes, the operational survival of organizations. It is therefore perhaps not surprising to find that in almost every survey conducted of boards and senior management, data issues rank as one of their three top concerns, if not their single greatest concern. With that backdrop, organizations increasingly look to general counsel to manage data privacy and security risks.

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New Year, New You – What’s on Your Bank’s List of New Year’s Resolutions?

With the end of the year approaching, it is time to start looking forward to 2018 and putting together that list of New Year’s resolutions. This list of annual goals can be especially important for community banks because, let’s face it, times are a-changin’ and community banks cannot afford to ignore this, especially in the face of the ostensible juggernaut that is fintech. “New Year, New You” doesn’t have to be a mantra solely for individuals; it can also be a mantra for community banks who want to make 2018 a successful year. To get you started, we have provided some suggestions that may help you turn 2018 into a very positive year for your bank.

Don’t be Consciously Blind

With such a vast amount of information thrown at us every day, I think we are all guilty of becoming consciously blind. It’s true, all the information can overwhelm us, making us turn a blind eye and ignore what everyone has to say and assume if something really important happens, someone will tell us. As a banker, you cannot afford to do this. With the promulgation of new regulations and advances in technology, it is important for community banks to remain aware of the financial landscape and evolve. Whether this means meeting revised regulations or updating technology to meet your customer’s needs, make a resolution to stay abreast of information that may affect your bank.

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Storytelling by Walt

Storytelling by Walt

October 5, 2017

Authored by: Robert Klingler

As Jonathan and I mentioned on our podcast on succession planning a few weeks ago, our patriarch and founding father, Walt Moeling, formally retired at the end of 2016.  However, his knowledge and influence continue to permeate almost everything we do (and he still has the same office down the hall).  One of the ways that influence can be seen continues to be in our use of stories originally told to us by Walt.  Of course, his storytelling ability has been noticed, including by the press. Several years ago, as part of our succession planning, we began chronicling some of those stories.  What follows is what I wrote two years ago…

In early 2010, our clients were dropping like flies, with one or two clients failing every Friday. Even as one client entered receivership, we were each likely working with three or four others that were on the same path. (Each was a horror movie, and we knew exactly how it would play out, even if our clients held out optimism each time that, for whatever reason, their story would play out differently.)

Walt and I were on the phone with one such client who had just passed the 2% leverage ratio threshold, and was in discussions on next steps.  The executives were worried about how their employees would handle the receivership. Walt, as usual, slipped into a story about another (former) client that had been a client for years. Whenever Walt called, the president’s administrative assistant, Nancy, would answer the phone and chat with Walt before tracking down the bank’s president. Walt shared how he had listened as Nancy became increasingly depressed as the bank’s condition had deteriorated.

In his best Southern belle, falsetto, voice, Walt would demonstrate the decreasing pep in Nancy’s voice. From an upbeat “Good Morning, Walt!” to more and more depressing “Oh, Walt, things are hard, but we’re trying.” In the weeks leading up to that client’s receivership, Walt himself became increasingly saddened by Nancy’s stress. Calls now usually started “Oh, Walter, things are rough.

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