BBVA Compass Bancshares might be the latest financial institution to have its M&A aspirations stunted by compliance shortcomings, but it could be a bit of a blessing in disguise for the foreign-owned bank.

The $76 billion-asset company disclosed earlier this month that it expected to be restricted from expansionary activities such as acquisitions and branching because of the rating from its 2013 Community Reinvestment Act examination by the Federal Reserve Board. BBVA Compass, a Birmingham, Ala., unit of Spain's Banco Bilbao Vizcaya Argentaria, did not disclose its expected rating, and it did not detail what issues turned up during its exam.

The potential issue for BBVA Compass is the latest example in a growing list of collisions between regulators' focus on compliance issues after the economic downturn of 2008 and bankers' desires to return to M&A before prices get too high. M&T Bank's still-pending acquisition of Hudson City Bancorp has become the poster child of compliance purgatory, but other deals have also been iced by regulators' yellow flags.

Regulators are increasingly using merger applications as an entry point to call for changes, industry advisers said.

"The number of deals delayed or deferred because of compliance issues over the last 12 to 18 months is much greater than it has been in maybe 25 years," said Sanford Brown, a partner at Bracewell & Giuliani.

In that regard, BBVA Compass' executives find themselves in perhaps a better situation than others; management is being told by regulators to fix issues while its M&A plans are still conceptual. It is unclear if the company had any deals lined up, but investment bankers said BBVA Compass was interested in M&A, but had been rather selective.

"I'd say it is much better to figure this out now while you're thinking about M&A than to find a deal and then have egg on your face when regulators find issues," said Daniel Bass, a managing director of Performance Trust Capital Partners.

Nonetheless, industry observers said BBVA Compass' disclosure is another reminder that regulators have identified compliance with CRA, fair lending and the Bank Secrecy Act as a top priority. As a result, banks should expect added scrutiny.

"BBVA Compass is a good bank … and the problem is likely something simple like they focused on their growth too much and things like fair lending and compliance were not the priority it should have been," said Ken Thomas, an independent bank consultant and economist. "Compliance must now be thought of as a 24-7 effort rather than just a 9-to-5 job."

The company's last CRA examination took place in 2011, when it received a "satisfactory" rating. Thomas said BBVA Compass' situation reveals why it is important for banks to aim for an "outstanding" rating to provide for some wiggle room. If there a specific violation, the bank can expect to have its rating moved down one rank - an "outstanding" becomes "satisfactory" or "satisfactory" becomes "needs to improve" - and such a rating would likely include growth restrictions.

BBVA Compass declined to make an executive available. The company said in a statement that it is committed to helping its communities through efforts like financial education in low- and moderate-income areas, adding that it plans to do more. In coming weeks, BBVA Compass will announce "a substantial commitment" in loans, investment and services to such communities. The company also said it is centralizing internal responsibility and management of CRA compliance, creating a CRA committee and hiring more staff dedicated to community reinvestment.

"We take seriously our obligation to help our communities clear a path to prosperity, so we are disappointed that our rating on our most recent CRA exam may not fully reflect that," the company said in the statement. "We intend to make this right, and it's our promise to our customers and our communities to be transparent in this effort as we move forward together."

Several industry advisers said the recent attention toward compliance issues might be a result of bankers' belief that regulators were only paying attention to safety and soundness after the 2008 banking crisis.

"Some bankers may have gotten lax on compliance because they thought regulators were only focused on safety and soundness," Thomas said. "That was not the case then and is certainly not the case now. They're as tough as ever."

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