After a breathtaking 1997, marked by the giant take-over of Barnett Bank by NationsBank-the sharpest predator in the banking industry these days-1988 should continue to offer a boiling environment for Florida banks. Last year's trends, dominated by ongoing consolidations, mergers and acquisitions, should continue this year. But this environment will also prove very favorable for new banks to be created, especially in the community banking segment.

On the foreign side, observers say more Latin American banks should show their interest in doing business in Miami while domestic banks could also show more commitment in developing international banking activities. The banking business environment should remain strong, thanks to stable interest rates, and continued growth with low inflation despite the Asian crisis.

Lose more banks locally
From the Florida side, the continuation of the consolidations means we should lose more banks locally, as the most successful ones sharpen big buyers' appetites. "We will see a continued consolidation nationally and locally," predicts Dom Pino, financial services consultant at Price Waterhouse. "It's a never ending process." There are, he said a few legitimate motivations driving domestic banks into Florida acquisitions.

"The buyers are clearly looking at institutions that offer cheap deposit outlets," says Dom Pino, "and Florida is still a heaven for inexpensive deposits. Domestic banks look at their acquisition targets as an opportunity to bring in deposits at a lower cost." There is a lot of supply for deposits in Florida because there is a large retirement community. As a result, there is less competition to attract deposits and banks have to pay lower interest rates to their customers than their domestic competitors pay on average in the United States.

Among the other arguments for targeting a potential take-over are the synergies, says Dom Pino : "Whenever someone buys he looks for synergies. That is a valid acquisition criterion whenever the buyer is already in the market. Otherwise the synergies are less." But Dom Pino recognizes the overlaps are less likely too. Between 1991 and 1997, 200 banks were taken over in the state of Florida, and 50 disappeared "administratively" as a result of an interstate branching law that exempts banks from having to file a state charter in each state that they operate. But on the other hand, 30 new banks were created in Florida in that period-and this trend is likely to continue.

Lot of new banks creation
"There have been a lot of new banks created in Florida in '97 and this phenomenon is related to the consolidation," says Mrs Aruna Srinivas, an economist at the Atlanta Fed. "We've seen a lot of new banks created in '97 in the Sarasota and Tampa area, and on the mid-eastern coast, in the Daytona Beach area. If you look nationally, Florida ranks fourth in number of new banks created in 1997. If they can raise the capital, and after the regulators have found out whether or not the market can support a new bank, some people can apply and start their own bank."

According to Ken Thomas, an independent banking consultant in Miami, all the ingredients are here for more new community banks to start. "Unlike other countries, we have a large number of small banks," says Ken Thomas, referring to the take-over fever that built giant banking conglomerates around the world last year. "And I see this trend of new bank start-ups continuing in 1998."

He cites three reasons that support his argument. First, a lot of top management people are unemployed because of the consolidation, so the skills needed to start a bank are here, and a workforce is available for new banks. Second, a lot of branches available as a result of cost-cutting in the consolidations. "So you can take over some of them to start a community bank and save one or two million dollars in construction costs", says Ken Thomas. In other words, the land is there to start the business. And third, the capital is available. "The bank stocks have been doing very well so that it's not so difficult to find $6 or $10 million for a bank start-up."

Even though he predicts continuing consolidations, Dom Pino, also concedes this phenomenon will support new bank creations. "As the big banks buy smaller ones," he says, "a lot of entrepreneurs find themselves with a lot of money to reinvest. So there should be a number of new bank start-ups from 1998 to year 2000 as they regenerate their investments. They are young, aggressive local talents who know banking and want to put their money back to work." Other than the Barnett case, which is unique because it was already so big, Mr. Pino said the banks taken over are mostly owned by private investors. So the founders usually have a substantial amount of money from the proceeds of their previous banking business.

Banks are higly profitable
Of course, the main reason smart bankers are ready to allocate their own money in starting a bank is not because it is available, it is instead because it's profitable. According to a recent survey by the Atlanta Fed, most of the bank start-ups turn profitable in record time. Half of the banks created in the Southeast US between 1991-96 turned profitable in their second year in business, while more than 80% had broken even by their third year.

The enthusiastic climate for takeovers may also have a lot to do with a supportive economic environment, which is expected to continue in 1998. Florida is still expected to grow faster than the national economy, albeit with a smaller growth difference than in a past. And, most importantly for banks, interest rates are expected to stay low and stable with very low inflation. "The quality of loans is not even a question in a good economic environment like this," says Ken Thomas. "The bad loans are not there. Of course, there is still a potential for them in certain commercial real estate loans or in some highly leveraged commercial operations. But overall I see very few negatives.» The Asian crisis and its potential impact could be one of the downsides. "Whenever there is an international crisis people get concerne," admits Mr. Pino. "I hope this crisis will not affect banks in Florida but I can't rule it out."

So far the turmoil in emerging markets hasn't slowed the interest in Miami's international banking activities. All contingent, Central and South American should continue to grow and that will add opportunities for trade finance in the South Florida market. "There will be more investments by foreign banks, some Chilean in particular," he predicts. "But some domestic banks also want to have more stake in foreign banking." He says increasing its international exposure is one of the reasons Memphis- based Union Planters Corp., acquired Capital Bank, in Miami.