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Rockett Opines on M&A Landscape, New Considerations

SNL Financial, May 25, 2011 — Partner Jim Rockett was interviewed by SNL Financial to get his take on the M&A landscape for potential selling institutions and what considerations institutions will have to make when looking for a partner compared to past cycles. “The reality right now is that the former social issues — what you did to get ready for a sale — was to make sure you had in place various golden parachutes, severance plans and those types of things, and now, because many of those things are unavailable or frowned upon…the real work has to be trying to improve the back room of the bank,” Rockett said. “You have to make sure that your loan portfolio is properly reserved, that you really understand what the true book value of your bank is. You’ve got to also understand what the mark-to-market accounting is going to do if you’re the seller because if you don’t understand what that mark is going to do, you can’t evaluate whether the acquirer is going to be able to complete the transaction.” He also pointed out that old valuations are not going to come back in the near future. “The fact is that Dodd-Frank is going to have a dramatic impact on the earnings engines of banks,” Rockett said. “I was at a client’s annual meeting just a couple of weeks ago. They’d made $10 million, and they estimated that the cost of Dodd-Frank would be $3 million this year.” He added that banks under capital orders that don’t have access to capital and whose asset quality is continuing to erode because new exam teams mark their assets down more aggressively are in danger. “Those are the banks that are in real trouble right now, and that has been true, and is not going to change,” Rockett said.
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