Growing Up Looks Scary to Some Banks By Matthias Rieker
Some banks are looking at new regulations and deciding not to grow up.
Everett Collection I’ll never grow up Small banks can avoid a slew of added risk management measures and consumer oversight by staying below $10 billion of assets. The threshold is, in some ways “like going from junior high to high school,” said Lawrence Kaplan, a partner at law firm Paul Hastings.
Further down the road, there is college to consider: Some banks are trying to duck the $50 billion-asset threshold.
The Dodd-Frank Act to overhaul the financial services industry demands more capital from banks bigger than $50 billion because they are considered more important for the entire banking system. The rules established more hurdles to pay dividends and buy back stock, and those banks need to do two stress tests a year to prove they can master economic downturns.
New York Community Bancorp, for instance, is holding off acquisitions for now to remain smaller than $50 billion in assets because it might impact how much dividend the Westbury, N.Y., bank can pay its shareholders.
“Until we have clarity of the rules, we are $42 billion,” said New York Community Bancorp Chief Financial Officer Thomas Cangemi in an interview.
The bank has done eight acquisitions over the last 10 years, including AmTrust Bank, a failed bank in Ohio.
Now, Cangemi is more cautious.
“We evaluate, as part of our acquisition strategy, any impact of future regulatory changes. We would not jeopardize our ability to allocate capital back to shareholders.”
I agree. If the dividend remains untouched what better income investment is there? I bought more on the downtown yesterday. I don't know about Warren Buffett though. He likes to buy into companies that produce a product that is consumed and needs replacing on a regular basis. Like Coca Cola, toilet paper and insurance.