Navy Federal contract, Republic First failure: April's top banking news

April 30, 2024 3:03 PM

In this month's roundup of top banking news: Navy Federal Credit Union officially launches its overseas banking program, Republic First Bank in Philadelphia falls to capital troubles and investor outrage, deeper looks at talks between Discover and Capital One and more.

Click here to read last month's roundup of banking news.

It took about six months for Capital One and Discover to hammer out an acquisition deal, according to a new securities filing. The two companies signed a definitive agreement, which is subject to regulatory approval, on Feb. 19.

Bloomberg

Capital One and Discover walked away from talks before reaching a deal

Article by Allissa Kline

Capital One Financial and Discover Financial Services spent months talking — and even walked away from negotiations at one point — before the two companies reached a deal that, if it gets approved, will create the largest credit card lender in the United States.

In the second half of last year, as Riverwoods, Illinois-based Discover was dealing with a series of compliance and operational challenges, investment bankers started inquiring about the company's interest in a potential sale, Capital One said in a securities filing on April 19. The filing provides new details about how the proposed $35 billion acquisition came together.

One of the people who reached out to Discover's board chair, Thomas Maheras, was Stephen Crawford, an advisor to Capital One CEO Richard Fairbank. Crawford first made contact in the middle of August, according to the filing.

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Charleston, South Carolina, USA - February 28, 2020: One of the Navy Federal bank branch in Charleston, South Carolina, USA, the largest natural member credit union in the United States.

The $171 billion-asset Navy Federal was awarded the Department of Defense contract in September of last year, but has been fighting an uphill battle with regulators and critics since then to get the program off the ground.

Adobe stock

Navy Federal contract with Department of Defense is live

Article by Frank Gargano

Navy Federal Credit Union in Vienna, Virginia, is making good on its contract to provide military bases in Europe and the Pacific with banking services by officially opening its Military Banking Facilities.

The $171 billion-asset credit union announced April 2 that it began operating the MBFs, which include 60 locations and 272 ATMs across designated installations, this month as part of its September agreement with the Department of Defense. The locations will function under the brand "Community Bank, operated by Navy Federal Credit Union," and are considered wholly separate entities from Navy Federal itself.

"The Overseas Military Banking Program fits our core values at Navy Federal and is consistent with our primary mission of supporting active duty military members and their families," Kara Cardona, chief operating officer of Navy Federal, said in a press release. "Serving these families through this important DoD program is directly aligned with our mission."

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Capital One says it can help make Discover a stronger competitor to Visa and Mastercard. The deal's critics question that assertion and worry that the combined company would be a credit card giant, particularly in the subprime segment.

Bloomberg

Will the Capital One-Discover merger be approved? A guide to the issues

Article by Polo Rocha

The final outcome of the biggest bank deal since 2008, Capital One's blockbuster purchase of Discover Financial Services, is anyone's guess.

It could be blocked by U.S. banking regulators. The merger-skeptical Department of Justice could sue to block the tie-up, much like it did in the failed merger of JetBlue and Spirit airlines. Or the deal might get approved despite concerns from antitrust hawks.

Critics argue that the merger would create a massive credit card company, limit options for subprime borrowers and fail to put a meaningful dent in the market power of Visa and Mastercard.

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Washington D.C., USA - March 1, 2020: Sign and seal of The Federal Deposit Insurance Corporation (FDIC), an federal agency insuring deposits in U.S. banks and thrifts in the event of bank failures.

The Federal Deposit Insurance Corp. issued orders against Liberty Bank in 2009 and 2017 before ordering a liquidation or sale last year. The Federal Reserve and Utah regulators have now approved a takeover of the unprofitable bank.

Adobe Stock

A Utah bank is gone after 16 years of losses. Why did it survive so long?

Article by Polo Rocha

One of the country's smallest banks has been bleeding money since 2008. It's finally been put out of its misery.

The achingly slow demise of Liberty Bank in Salt Lake City is not technically a bank failure, a bankruptcy-like process where the Federal Deposit Insurance Corp. seizes an insolvent bank and sells off its assets.

But experts say the bank was headed in that direction long before regulators forced its sale — and some question why the regulators let it live so long. Regulators just approved the bank's takeover by Cache Valley Banking Company, a Utah lender that's bought failed banks in the past. Liberty Bank will remain operational under its new holding company's umbrella.

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Regulators took over Republic First on April 26 with Fulton Bank acquiring substantially all of the bank's assets and deposits. The sale will result in a $667 million loss for the Deposit Insurance Fund.

Republic First fails; Fulton Bank acquires assets, branches

Article by Kyle Campbell

Republic First Bank was shuttered by its state regulator and taken over by the Federal Deposit Insurance Corp. on April 26, ending the Philadelphia-based bank's yearslong struggle to maintain adequate capital amid a bitter proxy war with investor groups.

Fulton Bank in Lancaster, Pennsylvania, will assume substantially all of Republic First's $6 billion of assets and $4 billion of deposits, according to a statement from the FDIC.

Republic First's 32 branches, which are spread across Pennsylvania, New Jersey and New York, will open for business on the morning of April 29 — or the morning of April 27 for locations that normally operate on the weekend — as Fulton Bank branches, the agency announced.

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Citi: The megabank that is always rebuilding

Article by Allissa Kline

Early this year, Jane Fraser made one of her characteristically frank comments about Citigroup.

The long-beleaguered megabank — which has struggled with poor financial performance, ineffective risk management and internal controls and a stagnant stock price — has made strides in becoming a smaller, simpler firm since Fraser took over as CEO in 2021.

But the enterprisewide transformation that she's trying to execute isn't over.

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The Federal Reserve approved a merger between Provident Financial Services and Lakeland Bancorp, both based in New Jersey, despite concerns from community groups about past instances of lending discrimination. The Fed found that the existing consent order with the Department of Justice has addressed those concerns. The combined bank will have more than $25 billion of assets and be the seventh largest bank in New Jersey.

Al Drago/Bloomberg

Fed approves $1.3 billion merger of two New Jersey banks

Article by Kyle Campbell

Federal regulators signed off on the $1.3 billion merger of two New Jersey-based banks on April 11.

The Federal Reserve Board approved Jersey City-based Provident Financial Services' all-stock acquisition of Oak Ridge-based Lakeland Bancorp. The deal was first struck in September 2022 and submitted for regulatory approval that November.

Both banks are supervised by the Federal Deposit Insurance Corp. Because they both have bank holding companies, they are also supervised by the Fed.

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Key Speakers At Innovate Finance Global Summit (IFGS)

Lisa Jacobs, CEO of Funding Circle, said during a conference call with investors that "a simpler, more profitable combined U.K. business will deliver greater shareholder value with improved profitability and cash generation." The fintech has said it will focus more on its British lending operations.

Chris Ratcliffe/Bloomberg

SBA forges ahead with Funding Circle license despite pushback

Article by John Reosti

The Small Business Administration has given final approval to Funding Circle's application to join the agency's $35 billion 7(a) loan guarantee program. The move comes despite strong opposition from groups representing existing 7(a) lenders, as well as senior lawmakers from both parties in Washington.

Funding Circle US received word of SBA's decision, which came after about four months of review, on April 1, Ryan Metcalf, head of public affairs for the company, said on April 3. The company hopes to begin making 7(a) loans this month, Metcalf added.

SBA did not respond to a request for comment by deadline.

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Many legal experts think the Supreme Court will rule in favor of the Consumer Financial Protection Bureau in a case challenging its funding. Such a ruling would unleash a flurry of litigation that has been on hold pending the outcome of the constitutional challenge.

Bloomberg Creative Photos/Bloomberg Creative

If Supreme Court sides with CFPB, 'flurry' of litigation moves forward

Article by Kate Berry

The Supreme Court is expected to rule by the end of June on whether the funding structure for the Consumer Financial Protection Bureau is constitutional. If the court sides with payday lenders that sued the CFPB claiming its funding is unconstitutional, there would be massive fallout for other agencies, including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.

But many legal experts think the high court is more likely to rule in favor of the CFPB based on oral arguments heard in October when only one justice — Associate Justice Sonia Sotomayor — questioned what remedy there should be if the agency's funding through the Federal Reserve System is found to be unconstitutional.

Because the justices failed to devote much time to a remedy — and instead were highly skeptical that Congress improperly funded the bureau — many financial services industry lawyers are now gaming out what will happen to several rules and lawsuits that have been on hold pending the outcome of the case, Consumer Financial Protection Bureau v. Community Financial Services Association of America.

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Synchrony Financial has been raising annual percentage rates and adding fees to its credit cards in an effort to limit the impact of a pending new late-fee limit on the company's bottom line.

Bing Guan/Bloomberg

Synchrony hikes interest rates on credit cards to offset late-fee rule

Article by Polo Rocha

The credit card company Synchrony Financial is hiking interest rates it charges to its customers, part of a series of steps to mitigate the financial impact of a Consumer Financial Protection Bureau rule that would shrink its late-fee revenue.

The outcome of the CFFB's effort to slash credit card late fees is extremely uncertain. The industry may win its court fight to get the regulation temporarily blocked ahead of its May 14 implementation date. In the longer run, lenders could ultimately succeed in permanently nullifying the rule.

But with only three weeks left before the implementation date, Synchrony can't count on those outcomes. CEO Brian Doubles said on April 24 that the company is "executing our plan" after starting to roll out changes to its credit cards in December 2023.

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