Don't Jump Off the Cliff: How Smart Bank CEOs Time Their Bank Sale Perfectly
Wondering when to sell your bank?
It's the question every bank CEO eventually faces.
The best advice I know comes from NYU Finance professor Aswath Damodaran and his famous story about lemmings.
This simple story perfectly captures why so many bank sales happen at exactly the wrong time.
The Dangerous Lemming Story
In a 1958 Disney film called "White Wilderness," lemmings were shown running off a cliff into the ocean to their deaths.
This sparked a question:
Why would they commit mass suicide?
Picture the scene:
- The first lemming runs too fast and falls off the cliff
- The second lemming follows too closely and can't stop
- More and more lemmings follow the same path
Now imagine being the very last lemming.
You're racing toward the cliff.
You've watched your entire group disappear over the edge.
You have serious doubts about what you're about to do.
But then a dangerous thought creeps into your mind:
"They must know something I don't."
Remember these six words.
They are the deadliest words in banking and investing.
The Three Types of Bank CEOs
Damodaran divides lemmings (and I have extended that to bank CEOs) into three types:
1) The Followers
These CEOs watch what other banks are doing and copy them.
When others sell, they sell.
When others buy, they buy.
They don't ask why - they just follow the crowd.
"Everyone else is selling right now, so we should too!"
2) The Market Timers
Like Yogi Bear who always claimed to be "smarter than the average bear," these CEOs think they can outsmart everyone else.
They run with the crowd but plan to veer away at the perfect moment.
They believe they can time the market perfectly - getting all the upside and none of the downside.
This almost never works without pure luck.
3) The Value-Focused Leaders
These CEOs use valuation as their safety net.
It gives them something solid to hold onto when everyone else is rushing in one direction.
When you have a clear valuation of your bank, you can:
- Stay calm when others panic
- Make decisions based on facts, not emotions
- Recognize when the market is overvalued or undervalued
- Wait for the right opportunity, not just any opportunity
Why Most Bank Valuations Fail
The valuation process breaks down when a CEO already "knows" what their bank is worth before doing the analysis.
The biggest problem happens when you sit down to value your bank with a specific number already in mind. (Sound familiar? Price-to-book multiples anyone?)
Here's the irony:
The more you know about your bank, the stronger your preconceived notions become.
Once these ideas take hold, your "valuation" just confirms what you already believed.
A better approach mixes several different valuation methods, getting a more accurate picture of your bank's true worth.
Your Strategic Timing Action Plan
- Know Your Value First
- Use multiple valuation approaches
- Don't rely solely on what other banks sell for
- Document your bank's unique strengths
- Watch Industry Trends but Don't Follow Blindly
- Track market conditions and pricing
- Understand regulatory changes
- Consider economic cycles
- Focus on Your Bank's Specific Situation
- Assess your management succession needs
- Consider shareholder liquidity requirements
- Evaluate your competitive position
- Have Patience
- The best deals happen when you can walk away
- Rushed sales rarely maximize value
- Your timeline should serve your stakeholders, not the market
The Bottom Line
The best time to sell your bank isn't when everyone else is selling.
It's when selling makes strategic sense for your specific situation and when you'll receive fair value based on sound analysis.
Don't be the lemming rushing toward the cliff because "they must know something you don't."
Be the CEO who makes decisions based on clear valuation, strategic timing, and your stakeholders' best interests.
What steps are you taking to ensure you don't follow the lemmings over the cliff?
There are no shortcuts or hacks in building the confidence needed for major strategic decisions.
Just proven approaches centered around preparation.
This approach will:
- Inform your strategic planning
- Guide your resource allocation
- Clarify your priorities
- Define your value proposition
This is how savvy bank leaders operate.
They build valuable institutions through preparation, allowing them to choose the optimal path forward on their own timeline – whether that's continued independence or a strategic transaction.
I’ll see you next week.
