Buying a bank
Has anyone ever thought of/pursued buying a local bank to run, and maybe expand.
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An HBS MBA candidate trying to raise a search fund.
in like 20 years maybe definitely not rn
Love your spirit man, what about a FinTech? Seems the market has so many of them with a lot of AI buzz words, but no real lending risk management (would give a million bucks to a dog as long as signs it)
Sure, but there are good reasons that banks don't up and change ownership on the reg. Changing the ownership group (unless the purchaser is another bank) is about as hard as simply starting a new bank. So more often than not, if you have the management team and sufficient capital assembled that's what you'll see them do: start rather than buy.
Very challenging regulatory environment that gets harder every year - small banks can't absorb that like big banks can - not to mention low margins with no pricing power, hard to acquire customers in a digital era when the big banks have better apps... not a very enticing business model.
I wouldn't agree that it is not an enticing business model if you have a well-defined business plan and market strategy. What you can't expect to do is run a one-size-fits-all bank model and expect to satisfy the needs of both retail and commercial clients. For the reasons you noted... just not going to happen. But if you know there's an underserved business segment and you have sufficient capital to make it through the first several years until profitability; I would submit that banking is still a highly lucrative business which could deliver steady, if not stellar, returns both to management and the shareholders.
Word to the wise: only do it if the bank is an MDI or CDFI classified bank, as well as able to offer VA, FHA, Fannie, and Freddie SFH loans. If you can get those accomplished, there is protection from a lot of the more risky loans one offers, and capital requirements are lower. However, these banks typically have 4-15 branches and are not easily distressed due to government backing.
New capital requirements should be coming out at some point, and small banks will have an issue as SFH property values are now retracing slightly, as are smaller commercial properties. That is incorporated with a decrease in money supply/lack of new home buyers all but gone, which is a 14-22 month lagging effect, meaning it has about another 1.5 years to get worse; you will see issues at the smaller level. I'd suggest going into a small CDFI-backed bank and trying to become the regional manager or talking to the board or trustees about wanting to purchase in a couple of years. Wait for it to show distress and offer them a low ball.
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