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Listen: Street Talk Episode 13 - Good Times Rolling In Bank IPO Market

Street Talk is a podcast hosted by S&P Global Market Intelligence.

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The market for bank initial public offerings has rebounded considerably in 2017 and there is hope the resurgence in activity will continue next year.

The number of completed bank IPOs this year, excluding mutual conversions, has already doubled the levels seen in 2016, buoyed by a far more favorable market for bank stocks that began in the aftermath of the U.S. presidential election. That activity could continue if some of the pro-growth policies touted by the new administration come to pass, according to Scott Studwell, head of equity capital markets and co-head of financial institutions at Stephens Inc.

"We've got a very healthy pipeline of business. I can only imagine that there are other opportunities out in the marketplace that we're not aware of," Studwell said on the latest Street Talk podcast. "I do believe that we're going to see a fairly steady pace of bank IPOs over the next several years if the markets cooperate with us."

In the episode, we spoke with Scott Studwell and Jeff Jones, fellow co-head of financial institutions at Stephens, about the drivers of bank IPO activity, what investors are looking for in new issuances, the current IPO pipeline and the success Stephens has enjoyed since ramping up its depository practice two-and-a-half years ago.

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Stephens added roughly 15 FIG-focused professionals in mid-April 2015, and has increased the size of the team since then. The firm has advised on 27 bank deals since the third quarter of 2015. It worked on a number of capital raises during that time frame as well, serving as global coordinator or book manager on five bank IPOs, excluding conversions. That gives the firm the third-place ranking among underwriters of traditional bank IPOs, behind Keefe Bruyette & Woods Inc. and Sandler O'Neill & Partners LP, which have far larger depository practices.

Three of Stephens' IPO engagements have come in 2017, when issuance activity has eclipsed levels seen last year and in 2015. The Stephens investment bankers said bank stocks have rallied since the election because policy changes such as increased infrastructure spending and proposed tax and regulatory reforms are believed to offer an outsized benefit for banks. The stronger valuations prompted some banks to "hit the go button" this year, they said.

They said investors want to see banks with simple stories, strong risk management practices and robust core deposit franchises but noted that a successful transaction ultimately comes down to management teams selling their stories.

"A strong core deposit franchise, particularly where we sit in the cycle today, remains an ultimate building block or a key driver of value. All of that said, we will tell you that it all starts with management teams," Jones said.

Jones and Studwell said the passage of tax reform will play an important role in future bank IPO activity since the market has priced in some expectation that changes will occur. They also noted that market conditions have been quite favorable for new issuances, allowing bank IPOs to outperform the rest of the bank index as well as other areas of the IPO market.

"We're really at an optimal level for new issuance," Studwell said. "The low volatility that we're seeing in the marketplace makes it easy for investors to focus on the new issue market, versus the alternative: in a high-volatility environment, most of the attention investors are going to put on stocks [is] within the companies they already own to make sure they're not being hurt or penalized by market movement."

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