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December 23, 2001 at 07:00 PM
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Although data on bank sales of insurance products in 2001 are not yet available, indications are that they are strong and may even have seen a surge following the calamitous events of 9-11, industry observers say.
However, for the time being at least, banks’ interest in acquiring insurance agencies appear to have been quelled by economic realities as well as the World Trade Center and Pentagon attacks.
SNL Securities, a financial services research firm in Charlottesville, Va., reports 51 bank-agency deals completed in 2001, well down from 77 deals last year.
Bjorn Turnquist, director of financial services and insurance for SNL, says the development is part of a merger and acquisition slowdown affecting most industries.
“M&A is not viewed by the Street favorably right now,” Turnquist observes.
John Wepler, a consultant with Marsh, Berry & Company, Concord, Ohio, believes that, with banks and insurance companies preoccupied with the aftermath of 9-11, acquisition strategies have gotten pushed to the back burner.
Recent economic news was another distraction, he notes.
Another reason for the fall in agency buying is the uncertainty that developed this year among banks about how an agency acquisition would look on their books. That concern arose after the Financial Accounting Standards Board mandated an end to pooling-of-interest accounting in favor of purchase accounting. That change left a question among acquisition-minded banks about what portion of an agencys purchase price would be charged against the banks earnings, Wepler observes.
Despite the drop in M&A deals this year, Wepler predicts that there will be a spike in agency acquisitions by banks early in 2002 as these changes are absorbed.
He notes that while actual deals have slumped, there has been a surge in agency evaluations, often a precursor to a deal announcement.
Banks still need to diversify revenue, he adds, and acquiring an agency is a fast way to position themselves as a total financial solution, particularly among medium-sized businesses and their wealthy owners, he notes.
Another aspect of the M&A slump is that insurers interest in buying banks has fallen considerably.
For instance, the federal Office of Thrift Supervisions reports there were no new applications for thrift charters by insurance companies this year. In contrast, insurers filed a total of 45 applications to establish or buy a depository institution from 1997 through 2000, out of a total of 220 applications the OTS received from all sources.
