Bank Strategy 2016 Review

The third year of this particular strategy is in the books with a pretty decent result.  In 2014, I embarked on a strategy of buying Regional Banks and collecting a dividend while waiting for a potential merger to occur.  The results were:

  • 2014 – 6-1-2 (21.9%) one full premium (2.3%) – 41 positions
  • 2015 – 16-3-0 (38.7%) three full premiums (6.1%) – 49 positions

Using 2014 as an example, I had a 21.9% success ratio of picking merger candidates, with 2 being reverse mergers (I get screwed on the premium), and one (2.3%) with a full premium.

I had some reservations at first, but soon embraced this strategy.  During 2016, I had a net gain of nine positions in regional banks – tweaking the strategy in April to include banks paying stock dividends and again in October to clear my watch list prior to the election.  (Yes, it was fortuitous timing).

Four transactions failed to complete by year-end, two were approved but closing scheduled after the new year  (one has now completed).  CIBC’s (CM) was postponed due to the post election price runup for Private Bancorp (PVTB).  Independent Bank (IBTX)’s acquisition of Carlile is in progress.  The pace of M&A activity appeared to have slowed leading into the election and due to anticipated rate hikes.

So 2016’s result is 8-2-0 (13.8%) two full premiums (3.4%) – 58 positions.  Due to valuations, I doubt I’ll be adding positions to this strategy in 2017.  I do expect the merger pace to pick up in the latter part of the year.