Solving the Deposit Dilemma with M&A: ABA Presentation

 Kamal Mustafa’s ABA presentation drew a standing-room crowd.

Kamal Mustafa’s ABA presentation drew a standing-room crowd.

There’s only one true way to solve the deposit dilemma and other balance sheet challenges facing community banks as interest rates rise and QE unwinds: a targeted merger or acquisition. Invictus Chairman Kamal Mustafa, the former head of global M&A at Citibank, held an overflow room in rapt attention at the recent ABA convention in New York as he explained how and why M&A can propel a bank to success. Take a look an this excerpt from his presentation.

Regulatory Statement Offers Good News for Banks with CRE Concentrations

 The interagency statement from bank regulators makes clear that guidance is not the same as regulations or laws.

The interagency statement from bank regulators makes clear that guidance is not the same as regulations or laws.

Note to banks with high CRE concentrations and a solid plan to manage them: There’s good news in this week’s interagency statement from prudential banking regulators.  Regulators want you to know that “thresholds are exemplary only and not suggestive of requirements.”

The “clarification” from regulators notes that they are planning to “limit the use of numerical thresholds or other ‘bright-lines’ in describing expectations in supervisory guidance. “ It also makes clear that examiners cannot ding you in an exam for violating guidance.

So what does that mean? In this new anti-regulatory world, regulators want you to read supervisory guidance closely since it often outlines best practices for safety and soundness. But they acknowledge that guidance does not have the force of law, and can’t be used in enforcement actions.

The statement is a clear sign from regulators that they are hearing the repeated grumblings from banks about guidance becoming de facto law. But don’t expect guidance to become insignificant. If you don’t follow guidance that leads to unsafe or unsound practices, examiners will still identify those weaknesses at your bank.

Smart banks should continue to use tools such as stress testing for strategic reasons rather than compliance.   Then you can demonstrate to examiners that your bank can be trusted to operate above thresholds with optimized capital levels as a by-product.  Banks that take such an approach could start to see less examiner nit-picking and resistance for the sake of resistance.  And perhaps the regulatory climate will begin moving toward an innocent-until-proven-guilty environment, rather than the reverse.

Invictus White Paper on CECL Reveals Biggest Mistakes, Best Methodology

Most banks will fail to integrate their CECL solution with other crucial risk management practices such as stress testing -- a costly failure that can be prevented. A new CECL white paper by Invictus President Adam Mustafa reveals which CECL methodologies are best, and how to implement CECL the right way from the beginning. 

Mistakes will be very expensive. The price to pay will include wasted shareholder value from excessive loan loss reserves, unnecessary expenditures and needless time spent on implementing the wrong system.


Fed’s New Proposal Validates Invictus Stress Testing Model

 Adam Mustafa, Invictus CEO, teaches bankers about disruptive intelligence

Adam Mustafa, Invictus CEO, teaches bankers about disruptive intelligence

The Federal Reserve is proposing to link the results of the CCAR stress tests to customized capital requirements for banks with greater than $50 billion in assets.  The proposal would add an additional stress buffer requirement to ensure there is enough capital for stress losses.

Dubbed the stress capital buffer (SCB), it would be added to the PCA guidelines for an adequately capitalized bank.  Here’s how it would work: If a bank has a CET1 ratio of 9 percent, but it falls to 6 percent under stress, then it would need an SCB of 3 percent.  The 3 percent would be added to the PCA minimum of 4.5 percent, giving the bank a customized capital requirement of 7.5 percent.

This methodology should sound very familiar to Invictus clients. 

This is almost identical to how Invictus calculates customized capital requirements for bank clients, with the remaining excess capital referred to as FreeCapital™.  Invictus has been using this methodology for nearly eight years. Our clients have used the results of their stress tests to successfully negotiate a reduced capital requirement with regulators.

The Fed’s new proposal serves as a formal validation of our methodology.

It also demonstrates the folly of a one-size-fits-all approach to capital adequacy. Yet that seems to be the norm: The Senate’s proposed community bank leverage ratio, FDIC Vice Chairman Thomas M. Hoenig’s call for a 10 percent leverage ratio, etc.

Community banks that opt for such approaches are practically giving away precious capital and in turn, destroying shareholder value. They need to take matters into their own hands by calculating their own capital requirements through stress testing.

Stress testing is simply the new calculator of capital adequacy.  Our foresight to utilize a stress testing methodology eight years ago is simply a reflection of our innate understanding of the big picture in today’s complicated banking world.  We embraced the concept of forward-looking analytics before it was a requirement, and our clients have gained a competitive edge as a result.

 Stay tuned. Our next issue of Bank Insights takes a deep look at the pitfalls of the community bank leverage ratio.  Our mission is to use disruptive bank intelligence to create analytics that give our clients real value, such as freeing up regulatory capital.  

Invictus Names Adam Mustafa as President to Lead AI Effort

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The Invictus Group®, a data-driven bank strategic advisory firm, has named Adam Mustafa as its new president.  He will lead the company as it evolves its data and analytical capabilities to become compatible with artificial intelligence.  

Mustafa, one of the firm’s founders, had previously been managing director of model development and client services.  The company, formerly known as the Invictus Consulting Group, has rebranded with a new website, logo and mission. It serves the community banking market with a wide array of services, including M&A, stress testing and capital planning and CECL readiness.

“The Invictus Group® is no longer just a consulting company,” Mustafa said. “We are not only about stress testing or M&A advisory services, though we excel in each.  At our core, we are a data and analytics company.  We pride ourselves on being cutting-edge without straying from the pure fundamentals of banking.”

Mustafa, 39, has overseen the design and implementation of customized capital stress testing, capital management and strategic planning systems for banks ranging from under $100 million in assets to those with more than $10 billion.  He will continue to work directly with clients in this new role. He is frequently invited to speak on association and regulatory panels about CECL, CRE concentration risk management and M&A. He has a B.A. from Syracuse University and an MBA from Georgetown University.

The Invictus Group specializes in M&A advisory, capital planning and stress testing and CECL readiness for community banks. Its research and development department is working on a service for bank investors, capital raising solutions for community banks, a loan pricing system, and a loan risk rating system. 

The announcement was made by Invictus Chairman Kamal Mustafa, the former head of global M&A at Citibank.


Community Bankers of Michigan Convention Features Invictus


Invictus Group president Adam Mustafa will address the Community Bankers of Michigan Annual Convention Trade Show in Traverse City on Sept. 13th. The theme of the conference is "Soaring to New Heights." Mustafa  will explain how M&A, when analyzed with the right tools and targeted precisely, can be a solution to troubling trends in the market. Attendees will learn how to strategically position their banks to maximize shareholder value and outsmart their peers.


Invictus CRE Approach Gets Regulatory Nod

Invictus president Adam Mustafa had an FDIC assistant regional director and an OCC examiner nodding in agreement when he told an audience at the New Jersey Bankers Association CRE conference that they should have appropriate CRE concentration risk management processes in place, regardless of regulatory expectations. "Ignore them," Mustafa said of the regulators.  "Do it for the strategic good of the bank."

Mustafa said too many banks approach compliance for compliance sake, which is a big mistake. Banks that integrate stress testing and capital planning into the strategic planning fiber of the their banks end up more profitable and have an easier time persuading regulators that they know what they are doing. Also on the panel was Steve Slovinski, FDIC Assistant Regional Director, and Phillip J. Young, OCC National Bank Examiner.