Long delays for deal approval cast cloud over bank M&A

Bank M&A activity has been brisk for much of 2021, but industry experts say the pace could slow next year as long delays for regulatory approval are beginning to give some potential dealmakers pause about pursuing mergers or acquisitions.

“I’ve had conversations with both potential buyers and sellers who are now waiting to see how the backlog gets resolved,” said Jacob Thomson, a managing director of investment banking at Samco Capital Markets.

“More scrutiny under the [Biden] administration was expected,” he added, “but we’ve seen enough timelines changed substantially that more people are taking notice, and it could deter some deals that otherwise may have been announced” in the first half of 2022.

At issue: President Biden in July issued an executive order calling for closer examination of mergers, specifically including bank combinations, as part of a broader effort to promote more competition in financial services, technology and other sectors.

Though the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency — key supervisors of bank deals — have not publicly cited the Biden order, there is little question that they have lengthened reviews of larger mergers. Staffing shortages amid the pandemic have also added to the time it takes regulators to examine deals, bankers have said.

Longer review periods are “not going to cause major widespread problems, but it does add an element of uncertainty that is making some people stop and think if now is a good time to pull the trigger on a deal,” Thompson said.

The planned merger of First Citizens BancShares in Raleigh, North Carolina, and CIT Group in New York, is a case in point. The companies in September extended the deadline for closing their $2.2 billion merger by more than four months because the deal had not earned the Federal Reserve’s approval. The two companies announced the deal in October 2020 and had planned to complete it by Oct. 15 of this year. They recently set a new deal deadline of March 1, 2022.

Frank Holding, the chairman and CEO at the $60 billion-asset First Citizens, told investors on a third-quarter earnings call that “we understand and share the frustration regarding the length of time that has been required to obtain the necessary approvals for this merger.” But he chalked it up to additional layers of review. “We have not been made aware of any regulatory problems with our application, and we're confident in our ability to close this deal” with the $54.4 billion-asset CIT.

Also, the $57.9 billion-asset New York Community Bancorp in late October said regulators likely would not approve its $2.6 billion deal to buy the $27 billion-asset Flagstar Bancorp in Troy, Michigan, by the end of 2021 as originally planned. The Long Island-based New York Community said it first needs the FDIC’s thumbs up and then the Fed’s approval. The deal, announced in April, is now projected to close sometime next year.

U.S. bank M&A activity has surged in 2021, with 180 deals announced as of mid-November, compared with 111 for all of 2020, according to data from S&P Global. This uptick reflects pent-up M&A ambitions that were put on hold during the pandemic, bankers and observers say.

The median closing time for deals in 2021 is 142 days, according to S&P Global, but at least seven of the 20 largest deals awaiting approval have taken longer.

Other deals still awaiting regulatory approval include: M&T Bank’s acquisition of People’s United Financial, which was announced Feb. 21; WSFS Financial’s deal for Bryn Mawr Bank, reached on March 9; Webster Financial’s acquisition of Sterling Bancorp, agreed to on April 19: and Old National Bancorp’s merger with First Midwest Bancorp, announced May 30.

“The banks can’t really say publicly why exactly things are taking longer,” and regulators don’t comment on pending deals, “so it’s hard to chalk up every delay to the Biden order,” said Mike Matousek, head trader at U.S. Global Investors. “But we’ve seen enough examples this year that it’s pretty clear regulators are taking more time, are looking more closely, and that’s going to get into people’s heads as they think about new deals.”

He noted that even a couple community banks have pushed back closing dates on announced mergers, citing regulatory delays.

Blue Ridge Bankshares in Charlottesville, Virginia, said in November that its merger with FVCBankcorp in Fairfax, Virginia, would likely close in the second or third quarter of next year, rather than by early 2022 as originally planned. Also last month, Eagle Bancorp Montana said the closing of its acquisition of First Community Bancorp in Glasgow, Montana, would be delayed from late this year to the first quarter of 2022.

BOK Financial Chief Operating Officer Stacy Kymes said such postponements are attracting attention across the industry. While his bank is focused on organic growth, Kymes said in an interview that dealmakers are bound to find the delays discouraging.

“It can’t help but have a dampening effect at some level,” said Kymes, who will become CEO of the $47 billion-asset bank in Tulsa, Oklahoma, at the start of 2021.

He said that, if a bank finds itself in a protracted deal approval process, it effectively ends up in a state of limbo that puts it at a competitive disadvantage.

“So the industry really does need some clarity around expectations for approval,” he said.