Acquire or Be Acquired 2023: Disruption ‘Comes Home’ to Banking

Key themes emerging from AOBA can help guide industry leaders’ strategic discussions.

Scottsdale, Arizona was chillier than normal this week, but that didn’t prevent bankers from having heated discussions about 2023 at this year’s Acquired or Be Acquired conference, hosted by Bank Director.

Where else can somebody find 1,700 banking industry leaders dressed in business attire at 7:30 a.m. on a Sunday? For those who haven’t attended AOBA, this gathering is the Coachella or Sturgis of banking – a non-stop, game-on conversation about the future of our industry for 72 hours straight.

While AOBA provides a fertile forum for buyers and potential sellers in the bank M&A space to commensurate, the crowd uses this valuable face time to also delve into discussions about the economy, strategic growth, fintech innovation, competition, and talent wars. So, esteemed GonzoBankers here’s a quick summary of the key themes emerging from the event that can help guide your strategic discussions.

Let’s Schedule a Quick Recession

It’s almost humorous how the business world is hoping to slip into a quick, light recession in 2023 like they’re dropping by the gym for cardio. KBW’s Tom Michaud mentioned in the conference opener that analysts are expecting a “softer” versus “soft” landing in the economy, given how dramatic rate increases have been and how quickly indicators turned negative.

‘Coming Home to Banking’

With big tech stock crashes, fintech layoffs, and the coming of crypto winter, it was clear that bankers felt safer competitively in 2023 than they did in years prior. Many speakers talked about the huge opportunity to integrate fintech and breakthrough technologies like blockchain and AI into the established banking industry.

An Expanding Regulatory Perimeter

With the collapse of crypto and FTX serving as this generation’s Enron, discussions abounded that the reach of traditional regulators will expand into the fintech, shadow banking, and decentralized finance worlds. Former OCC head Gene Ludwig said this movement puts bankers back in the driver’s seat, and many legal experts present predicted that regulation would move toward “activities” rather than a particular financial charter.

Deposits, Deposits, Deposits

With nearly $1 trillion of “COVID bump” deposits already leaving the industry, bankers are bracing for a severe period of deposit competition. Buoyant bank earnings early in the year will begin to fade as deposit betas rise quickly and margin compresses. Every banker now wishes they had laid down stronger funding strategies during the government-aid-fueled liquid times.

Digital Transformation – More Digital Than Transformative

As bankers shared notes on recent technology investments, it is clear that there has been more digitization of how bankers already do business rather than a rethink of how to create a customer experience and operate the business with new tools and capabilities. But it’s clear the “ChatGPT moment” has bankers feeling the heat that things may need to change very quickly.

Business Experience Catches Consumer

In past years digital innovation discussions tended to focus on consumer-focused players (e.g., Chime, Venmo, Rocket Mortgage); the dominant focus for bankers this year was on bringing user-friendly, friction-free experiences to small business and commercial customers. Many banks have expressed that the small-to-medium business segment (SMB) is the prime area where leaders want to gain a competitive advantage.  

Bankers and Techies Joined the Hip

There was a special vibe at this year’s AOBA. The techies had moved from the kids’ table to an elbow-to-elbow prime seat beside the leaders who control the resources and capital in the industry. There were many joint presentations with bankers and fintechs, talking about new initiatives they are working on in the trenches. As disruptive innovation “comes home to banking,” the team at Cornerstone Advisors predicts that the ability of technology to drive tangible business outcomes for banks may skyrocket.

Quiet M&A with a Year-End Kick

And finally, let’s talk about M&A deal flow. Well, most AOBA attendees don’t expect a groundswell right now. With unrealized investment losses sitting on bank balance sheets and uncertainty about credit conditions during a recession, it’s clear that deals will need to be compelling to push over the goal line. In addition, longer regulatory approval times are exposing bank investors to greater risk in achieving target merger outcomes. However, most bankers were optimistic that deals would pick up later in 2023 and that the chances of a raging 2024 are strong.

The Cornerstone team salutes the Bank Director team for one of the best industry events in recent years. We loved President Michelle King and COO Laura Schield donning their Kansas City Chiefs and Cincinnati Bengals jerseys to kick off the event, and we enjoyed watching the playoff game on the ballroom's big screens. Like the Phoenix Open and Super Bowl week coming soon to Arizona, it’s clear things are going to be hopping in banking this year.