WaFd, Luther Burbank extend merger deadline

WaFd in Seattle and Luther Burbank in Santa Rosa, California, extended the deadline to close their planned merger to early 2024.

The two companies announced in November 2022 that WaFd would pay $654 million to buy Luther Burbank. At the time, they said the combination could be completed as soon as the second quarter of 2023. The target date eventually got pushed to Nov. 30 and then, in a regulatory filing last week, the $22.5 billion-asset WaFd said the companies agreed to extend the deadline to Feb. 29.

WaFd did not cite a reason but said it and the $8.1 billion-asset Luther "acknowledge the continuing merits of the merger to each party's shareholders, employees, clients and communities they serve." The companies "are fully committed to the merger and continue to make significant progress in planning for its closing and the integration of the companies."

Keefe, Bruyette & Woods analyst Kelly Motta said the extension did "not come as a surprise" as "both parties had the option to extend through February if the deal was not consummated" by the end of November.

The companies' respective shareholders approved the deal in October of this year, and the Washington State Department of Financial Institutions granted conditional approval. However, the combination still awaits approvals from regulators at the Federal Reserve as well as the Federal Deposit Insurance Corp. The FDIC is the principal federal regulator of both banks.

Earlier this year, more than 50 advocacy groups, including housing activist organizations in California, lobbied the FDIC to impose conditions on the deal or withhold approval.

"The proposed merger threatens to result in lost jobs for California workers, fails to demonstrate it will meet the convenience and needs of impacted communities, fails to demonstrate a public benefit, and raises questions and concerns about managerial resources, systemic risk, and respect for regulatory oversight," the groups, led by the California Reinvestment Coalition, wrote in a letter to the FDIC.

The groups did not specify the conditions they wanted the FDIC to impose but they cited concerns that Luther Burbank's multifamily lending business provides financing to landlords who seek to displace tenants in favor of wealthier occupants. There were also worries about WaFd making loans to fossil fuel companies.

Additional regulatory scrutiny has stalled several deals over the last couple of years and contributed to a slowdown in bank M&A activity in 2023. Through the third quarter, there were 79 transactions announced, down from 122 in the same period in 2022, according to S&P Global data. 

Most notably, the oft-delayed merger of TD Bank Group and First Horizon was called off in May, with both companies citing insurmountable regulatory hurdles. The deal, valued at $13.4 billion when it was announced in February 2022, was originally expected to close in the fall of last year. 

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Elevated inflation and a vulnerable economy also pushed some buyers to the sidelines. Fed policymakers ratcheted up interest rates in 2022 and early this year to curb soaring prices. Recession fears have lingered since then.

The WaFd-Luther combination would create an institution with about $30 billion of assets and more than 200 branches in nine states, mostly in the Western U.S. The deal would give WaFd a foothold in California, the nation's most populous state.