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Will MTB-PBCT Merger Regulatory Delay Dissuade Bank M&As?
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M&T Bank Corporation (MTB - Free Report) and People's United Financial, Inc. have announced the extension of their merger agreement deadline to Jun 1, 2022, from the initial timeline of Feb 21, 2022, as the deal awaits the green light from the Federal Reserve.
In October, the merger received approvals from bank regulators of New York and Connecticut — New York State Department of Financial Services and the Connecticut Department of Banking — wherein M&T and People’s United are headquartered.
However, the board of governors of the Federal Reserve System is yet to sign off the approval for the merger. As a state-member bank, it is imperative for M&T Bank to get approval from its main banking regulator, the Fed, for the merger.
The $7.6-billion deal is anticipated to expand M&T Bank’s presence in the Northeast and complement top-tier deposit share in core markets.
What’s Causing the Delay?
Regulatory approval has likely been delayed due to a backlog of increased bank mergers activities, President Biden's executive order calling for higher scrutiny by government agencies before approving bank mergers, and the pandemic-fueled staffing shortages.
Regulators have come under pressure to toughen merger-approval processes after President Biden issued an executive order in July 2021, directing regulators to make adjustments to the bank merger review process in an effort to promote more competition in financial services and other sectors.
Nonetheless, in December, the central bank approved First Citizens BancShares’ (FCNCA - Free Report) acquisition of CIT Group and Webster Financial’s (WBS - Free Report) deal with Sterling Bancorp, along with others.
FCNCA announced the acquisition of CIT Group in October 2020. The deal was approved in December 2021 and subsequently closed in January 2022. Webster Financial had announced the buyout of Sterling Bancorp last April and the same was approved along with FCNCA. WBS closed the buyout earlier this month.
In contrast, MTB’s merger with PBCT was announced in February 2021, way before the above deals were announced and was expected to close in the fourth quarter of 2021, subject to approvals.
Road Ahead
The merger extension announcement noted that both M&T and People's United “remain committed to the merger and seeking such approval.” We believe that the deal's chances of not receiving the green flag are narrow.
Notably, in late October, MTB announced that it would roll out a five-year reinvestment plan to provide $43 billion of loan investments and other financial support to low and moderate-income communities. The Community Growth Plan has been developed in conjunction with the MTB-PBCT pending acquisition and will be operational shortly after the deal closing.
Recently, the bank joined numerous other peers to reduce non-sufficient fees and overdraft fees. The company will eliminate non-sufficient funds, reduce overdraft fees from $35 to $15, and limit daily fee assessment to once per day (down from 5 times previously). These changes are scheduled to be effective in second-quarter 2022.
While there was no such mandate requirement for MTB’s merger approval, the $43-billion commitment and the reduction of overdraft fees should be looked upon favorably by regulators.
Escalating political and regulatory scrutiny of large bank mergers and acquisitions might result in higher execution risk for future deals. But this is not discouraging banks from consolidation activities.
This January, Civista Bancshares, Inc. (CIVB - Free Report) signed a stock-cum-cash deal to acquire Comunibanc Corp. for $50.2 million. The transaction, expected to close next quarter, will add seven branches in Henry and Wood Counties.
The deal is expected to bolster Civista’s commercial lending platform and add $329 million of total assets, $276 million of low-cost core deposits, and $165 million of total loans.
Hence, we expect banks to continue pursuing inorganic growth moves in 2022, backed by a need to strengthen their franchise, increase scale in new geographies or within their existing footprint to rise out flaring technology, and compliance costs.
Image: Bigstock
Will MTB-PBCT Merger Regulatory Delay Dissuade Bank M&As?
M&T Bank Corporation (MTB - Free Report) and People's United Financial, Inc. have announced the extension of their merger agreement deadline to Jun 1, 2022, from the initial timeline of Feb 21, 2022, as the deal awaits the green light from the Federal Reserve.
In October, the merger received approvals from bank regulators of New York and Connecticut — New York State Department of Financial Services and the Connecticut Department of Banking — wherein M&T and People’s United are headquartered.
However, the board of governors of the Federal Reserve System is yet to sign off the approval for the merger. As a state-member bank, it is imperative for M&T Bank to get approval from its main banking regulator, the Fed, for the merger.
The $7.6-billion deal is anticipated to expand M&T Bank’s presence in the Northeast and complement top-tier deposit share in core markets.
What’s Causing the Delay?
Regulatory approval has likely been delayed due to a backlog of increased bank mergers activities, President Biden's executive order calling for higher scrutiny by government agencies before approving bank mergers, and the pandemic-fueled staffing shortages.
Regulators have come under pressure to toughen merger-approval processes after President Biden issued an executive order in July 2021, directing regulators to make adjustments to the bank merger review process in an effort to promote more competition in financial services and other sectors.
Nonetheless, in December, the central bank approved First Citizens BancShares’ (FCNCA - Free Report) acquisition of CIT Group and Webster Financial’s (WBS - Free Report) deal with Sterling Bancorp, along with others.
FCNCA announced the acquisition of CIT Group in October 2020. The deal was approved in December 2021 and subsequently closed in January 2022. Webster Financial had announced the buyout of Sterling Bancorp last April and the same was approved along with FCNCA. WBS closed the buyout earlier this month.
In contrast, MTB’s merger with PBCT was announced in February 2021, way before the above deals were announced and was expected to close in the fourth quarter of 2021, subject to approvals.
Road Ahead
The merger extension announcement noted that both M&T and People's United “remain committed to the merger and seeking such approval.” We believe that the deal's chances of not receiving the green flag are narrow.
Notably, in late October, MTB announced that it would roll out a five-year reinvestment plan to provide $43 billion of loan investments and other financial support to low and moderate-income communities. The Community Growth Plan has been developed in conjunction with the MTB-PBCT pending acquisition and will be operational shortly after the deal closing.
Recently, the bank joined numerous other peers to reduce non-sufficient fees and overdraft fees. The company will eliminate non-sufficient funds, reduce overdraft fees from $35 to $15, and limit daily fee assessment to once per day (down from 5 times previously). These changes are scheduled to be effective in second-quarter 2022.
While there was no such mandate requirement for MTB’s merger approval, the $43-billion commitment and the reduction of overdraft fees should be looked upon favorably by regulators.
Escalating political and regulatory scrutiny of large bank mergers and acquisitions might result in higher execution risk for future deals. But this is not discouraging banks from consolidation activities.
This January, Civista Bancshares, Inc. (CIVB - Free Report) signed a stock-cum-cash deal to acquire Comunibanc Corp. for $50.2 million. The transaction, expected to close next quarter, will add seven branches in Henry and Wood Counties.
The deal is expected to bolster Civista’s commercial lending platform and add $329 million of total assets, $276 million of low-cost core deposits, and $165 million of total loans.
Hence, we expect banks to continue pursuing inorganic growth moves in 2022, backed by a need to strengthen their franchise, increase scale in new geographies or within their existing footprint to rise out flaring technology, and compliance costs.
FCNCA and WBS sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here.
PBCT currently carries a Zacks Rank of 2 (Buy), whereas MTB and CIVB carry a Zacks Rank of 3 (Hold).