Those public banks that exhibit these traits have a decent shot at improving and maintaining their stock price, and their relationships with the analyst and investor community. Those public banks that don’t, risk falling by the wayside.
Why is this so important right now?
It has become a virtual given that the banking industry will be consolidating, and that many of the community bank players that survive the consolidation will be institutions that buy other community banks and bulk up into larger organizations. The public bank’s stock price is its acquisition currency, says Laurie Hunsicker, managing director at Stifel, Nicolaus & Co. The higher the bank’s stock price, the more it can buy.
Private equity investor Joshua Siegel, who specializes in community banks, expects the industry to see between 1,000 and 3,000 bought out within the next five to seven years. Those that have a chance to survive will be the ones that build up, one way or another, to the $1 billion-assets mark, and assurance of independence will mean growing beyond that, to as much as $2-$3 billion, Siegel believes.
So, share price will be increasingly important, and investor relations is seen as an important part of the dynamic for public banks that intend to participate in the struggle for growth.
Transparency: warts and all communication
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Transparency has almost become a financial cliché, but the value of being seen as forthright, a straight-shooter, can’t be overestimated. “In this market environment, transparency is highly valued in the investment community,” says Andy Mus, senior vice-president and partner at Marsh Communications, LLC, an investor relations consulting firm.
Bad news isn’t a death knell to the bank’s image in the market. Rolling up like an armadillo, however, can be trouble.
Mus says the public bank that wants to maintain credibility with the markets has to acknowledge warts and worse. He’s seen banks try to bury warts in communications, even earnings releases. Markets aren’t fooled. All that does for them, he says, is undermine their image with investors.
“ ‘Here are our warts, and here is our plan for dealing with them’,” is the proper tack, says Mus. Showing this to investors may persuade them that they’ve found a good moment to take a position in the bank’s shares. After all, buying into obvious success doesn’t have much upside potential--everyone else has already done the same.
“What a lot of investors are looking for right now is the diamond in the rough,” Mus adds.
Consistency: Keep on message
In a sense, the point of “consistency” is similar to the phrase, “elevator speech” (short and to the point). The bank has to pare its message to the markets to the essentials, to what’s really unique. Mus notes that the me-too aspects of the company don’t bear bringing up.
Consistency is critical because the secret of investor relations is continual communication. “You must continue to hammer it,” says Lynn Casteel, executive vice-president and manger director, investor relations practice at Travers Collins & Co., because you are continuously talking to new individuals.”
Mus says the key reason to project a consistent message is avoiding confusion in the investor community.
“In this market, confusion is the death knell,” Mus explains. “The less confusion management can present, the more comfortable the investment community will feel.”
Visibility: Putting your face out there (everywhere)
Once you’ve got the first and second points down, visibility is where the continual practice comes in. Experts agree that management makes a big difference in investor relations in multiple ways. Those members of top management that deal with the analyst and investor community should be good communicators, and, if they aren’t, they should receive training, experts say. But that’s just a basic.
Top management must also believe in the point of investor relations.
“Much depends on the CEO and the value he or she places on communication,” says Mus. “Some believe the motto, ‘No news is good news.’ But in the long run, you lose the opportunity to gain the awareness, and the trust of, the investor community.”
And all three factors—transparency, consistency, and visibility—come together when there is bad news, says Casteel. Many executives go mum when things go wrong, he says.
“That’s the worst time to go black,” he warns.
There’s more to visibility than putting the CEO’s face out there. The bank has to make itself part of the investment community’s routine.
Case in point is the quarterly earnings release.
“Some smaller banks don’t distribute their releases broadly and that keeps them under the radar,” says Dave Hogan, director of investor relations at First Financial Bankshares, an 11-bank holding company in Abilene, Texas, with $3.8 billion in assets. He recommends publishing financial releases through such online services as P.R. Newswire and Business Wire, to broaden exposure. Using these services can add to the company’s “legitimacy,” says Hogan.
Hogan also favors at least a toe-dip into social media to help put the bank on the investment community’s radar. One place to begin exploring concepts, he suggests, is StockTwits.
|Social Media and Investor Relations
Not all investor relations practitioners favor social media. To explore some of the avenues available, check out banker David Hogan’s own article on this site: “Bull, Bear, Or Bird?: Social Media Comes To Investor Relations”
Topics: Community Banking,