- Key insight: Enova International, a nonbank consumer lender based in Chicago, has opted to withdraw its applications to acquire Grasshopper Bancorp.
- What's at stake: The reversal in strategy is due to unclear regulatory approval standards for nonbanks, Enova CEO Steve Cunningham told analysts.
- Forward look: Enova, whose plan to buy Grasshopper drew opposition from consumer-advocacy groups, said it is not shutting the door on buying a bank.
The nonbank consumer lender Enova International is ending its push to acquire Grasshopper Bancorp, citing what it calls unclear regulatory standards for nonbanks that want to buy national banks.
The reversal in strategy comes nine months after Enova, a publicly traded company with roots in high-cost payday lending, announced that it would buy New York City-based Grasshopper in a cash-and-stock deal worth approximately $369 million.
The transaction, which had been expected to close during the second half of this year,
Neither the Federal Reserve Board nor the Office of the Comptroller of the Currency, both of which had been evaluating the proposed deal, had issued a decision prior to Enova's announcement Monday that it was withdrawing its applications with the two agencies. Shares in Enova plunged 25% on the news.
Steve Cunningham, who has been Enova's CEO since January, criticized the deal-approval process during a conference call late Monday with analysts. He said that while regulators have encouraged nonbanks to voluntarily enter the banking system, the process "has not evolved enough to clearly articulate the standards for nonbanks like Enova, who serve customers whose credit needs have traditionally been met mostly outside of the banking system."
"Without these clearly articulated standards," Cunningham said, "the process is susceptible to influence, political pressure and outside advocacy, independent of the merits of the application itself."
Back in July, Cunningham told analysts that he had "a lot of confidence" in Enova's application.
Grasshopper Bank was founded in 2019 with a mission to bank startups and their venture-capital backers. At the time, it was the first de novo bank chartered by the OCC in the Northeast since the financial crisis. As of June 30, it had $1.6 billion of assets and one office in Manhattan.
A representative from Grasshopper was not immediately available Tuesday to comment.
Consumer-advocacy groups cheered Enova's decision to back out of the deal. In a statement, Mike Calhoun, CEO of the Center for Responsible Lending, said it is "appropriate" that Enova withdrew its application to be part of the insured banking system.
He urged Opportunity Financial, another high-cost nonbank consumer lender, which has announced
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In July, a coalition of 20 mostly Democratic state attorneys general urged federal financial regulators to reject the proposed acquisitions of banks by Enova and OppFi. The AGs were concerned that the two lenders would use bank acquisitions to override state usury laws.
During Monday's conference call, analysts tried to dig deeper into why Enova pulled out of the deal. They wondered if specific
Cunningham declined to give specifics about the company's conversations with regulators. He said pursuing the deal without a lack of clear regulatory guidelines would have resulted in a costly back-and-forth with regulators, potential changes to the framework of the business or "flat-out denials." The company said it now plans to accelerate share repurchases for the remainder of the year.
"We made the decision that the right thing for Enova and our shareholders was to withdraw at this time," Cunningham said. "That hasn't closed the door on that option forever, though, and we'll continue to evaluate our options within the context of the regulatory environment to make, like we always do … the right decisions for our customers and our shareholders."
