The “Catch 22” on Bank Capital

Here’s a snapshot of the banking industry that should give every CEO pause. It illustrates the earnings pressure on banks and shows why consolidation is inevitable. Even though the industry has essentially worked through the financial crisis, two out of every three banks in the country still have less than 10 percent ROE, which is higher than in the pre-crisis years.  Shareholders will not accept such low returns in the future.  Yet regulators want banks to hold even more capital, which creates a “catch 22” for management teams as they navigate banks through a highly competitive and artificially low interest rate environment.   As part of its analysis of the M&A market, Invictus Consulting Group estimates that 611 community banks must sell, 542 banks should sell, 710 must buy and 984 should buy to achieve maximum shareholder value.