It is hard to believe that the date when bank equities peaked (October 12, 2007) during the onset of the financial crisis has now passed its 10th anniversary. While the mortgage meltdown was already kicking into gear, investors were still hopeful as we moved through the Summer of 2007 that significant damage could be avoided and the fallout in the real estate sector would be contained. The S&P 500 closed at a record 1.565.15 on October 9, 2007, a level it would not see again until March 2013.
Yes, it got ugly. And while some semblance of perspective and constructive insight has been gleaned over the years, the memory of the devastation caused during the downturn is still a powerful, and painful, memory for many.
In an eerie coincidence (and hopefully, not a harbinger of what may lie ahead), it is now a full 30 years since the infamous “Black Monday” (October 19, 1987), when the stock market sustained its largest one-day percentage decline by falling approximately 23% as the closing bell rang.
I have talked extensively about the changing banking landscape over the past few decades in Michigan (most notably, “Where Have You Gone Chick Fisher?”, October 12, 2016, link below), and I thought it would be interesting to take a quick look at a snapshot of the state’s largest banks both pre- and post-crisis:
As the chart depicts, Comerica was in the middle of relocating from Detroit to Dallas during the Autumn of 2007. There were some transformative mergers and FDIC-enforced failures during the past 10 years that served to both alter and/or eliminate the presence of some occupants from the 2007 listing, with Chemical emerging as the state’s largest player. Even some of the organizations that were able to survive the Great Recession now reflect consolidated balance sheets that are actually smaller today than they were a decade ago.
At the same time, some ‘newer’ names have surfaced between 2007 and 2017 in building $1+billion books of business. The resiliency of Michigan, and its financial institutions, has been sorely tested over the past 10 years, and so to ALL Michigan banks that still stand today, I tip my hat in both admiration and respect.
Today, roughly 10 months into a new administration that entered office with high hopes of reform (tax, regulatory, and healthcare, to name a few) and policy moves designed to foster economic growth and the potential return of a slightly-elevated, more traditional (and banker-friendly) yield curve, it seems as though frustration and uncertainty retain a bit of a stranglehold in our nation’s capital. I know for many of you, amidst all the noise and geopolitical wildcards, the challenges you face remain fairly constant, if not heightened: credit and interest rate risk, cybersecurity and operational integrity, technological change potentially threatening the viability of different business models, and the usual “succession” (management, board, and shareholder) issues that come with the territory.
Control that which you can control. Prepare for (and possibly brace, hopefully embrace) what is yet to come. As I travel around the state, I am encouraged by the continued focus and determination of management teams, and the level of optimism to potentially expand their business, both opportunistically and pragmatically.
I am not sure what Michigan’s banking landscape will look like in another 10 years, other than it is highly likely that the current listing from above will continue to experience some interesting changes in the months and years to come (and most assuredly supply me with an endless source of writing material!), but I do believe that the foundation is in place for continuing a healthy network of financial institutions. Now, if we can just get a little regulatory relief at the community bank level, well, that would be a good start to the next decade.
In closing, please find a link below to our monthly summary of Michigan’s financial institutions. As you and your Board take your organizations forward, please do not hesitate to reach out to me and/or my colleagues at ProBank Austin if we can be of any assistance in helping you assess the competitive landscape. Best wishes for continued success in 2017!