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Webster (WBS) & Sterling (STL) Merger Gets Regulatory Nod

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Advancing with the merger deal, Webster Financial Corporation (WBS - Free Report) and Sterling Bancorp have received regulatory approval from the board of governors of the Federal Reserve System for the all-stock merger between the two companies. The transaction, announced in April 2021, is expected to close on or around Feb 1, 2022, subject to satisfaction or waiver of the remaining customary closing conditions.

Per the previous announcement in August 2021, both banks also received respective stockholders’ approval for the merger. Webster Bank, National Association and Sterling National Bank, the respective subsidiary banks of Webster Financial and Sterling were also granted approvals from the Office of the Comptroller of the Currency to merge as part of the merger between Webster Financial and Sterling.

According to the terms of the deal announced in April 2021, shareholders of Sterling will get 0.46 of share of Webster Financial common stock for each share of Sterling. Thus, following the closure, Sterling shareholders will own 49.6% of Webster Financial.

After the deal’s conclusion, Sterling will be merged into Webster Financial, and the combined company will retain the Webster Financial name. The combined entity is likely to have $65.5 billion in assets, $42 billion in loans and $54 billion in deposits (based on balances as of Sep 30, 2021) and will operate more than 200 financial centers in the Northeast region.

Going by the previous disclosure, post completion of the deal, the combined firm is expected to generate a return on average assets and a return on average tangible common equity of 1.40% and 17%, respectively. Further, it will lead to cost savings of almost $120 million and generate $440 million of excess capital per year.

Our Take

Following the executive order by President Joe Biden that proposes a more rigid scrutiny of bank mergers, an extending timeline for the regulatory approvals can be seen of late.

The merger is expected to strengthen Webster Financial’s commercial banking, health savings, and consumer and digital banking business. Shares of Webster Financial have fallen 5% compared with the 4.5% decline recorded by shares of Sterling, over the past six months.

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Currently, both Webster Financial and Sterling carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inorganic Growth Efforts by Other Firms

Several companies from the finance sector are making consolidation efforts to counter the low-interest-rate environment and heightened costs of investments in technology.

FirstCash Holdings, Inc. (FCFS - Free Report) completed the previously-announced acquisition of American First Finance, a technology-driven, virtual lease-to-own and retail finance provider for underserved, non-prime customers. The cash-and-stock transaction, valued at $916 million (based on FCFS’s closing stock price on Dec 3, 2021), was announced this October.

FirstCash has a proven performance history in retail-based operations, primarily for cash-and-credit constrained consumers. Via this acquisition, FCFS will become a pioneer in the complementary and burgeoning point-of-sale and buy-now-pay-later payment space.

Walker & Dunlop, Inc. (WD - Free Report) successfully closed a $696-million deal to acquire tax credit syndicators and affordable housing developers, Alliant Capital, Ltd. and its affiliates Alliant Strategic Investments and ADC Communities.

Apart from steering Walker & Dunlop deeper into the affordable housing domain, Alliant’s competencies, assets and personnel will boost WD’s goals of furthering debt financing, property brokerage and assets under management as underlined in its Drive to ’25 strategic plan.


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