Getting Federal Reserve approval on bank mergers has been a well-publicized point of frustration for larger banks, but some smaller bank deals are also facing prolonged approval timelines.
One such deal is the merger of equals between CBTX Inc. and Allegiance Bancshares Inc. The deal has been pending for more than 295 days, above the median of 168 days for deals resulting in a bank with between $10 billion and $100 billion in total assets announced since Jan. 1, 2020. The Texas-based banks have received approvals from the Federal Deposit Insurance Corp. and the state's regulatory agency, but Fed approval remains outstanding.
As such, the banks were recently forced to amend their merger agreement in order to extend the termination date to Nov. 1 from Aug. 2 and the regulatory extension date to Jan. 3, 2023, from Oct. 31, 2022, in the strongest indication yet that regulatory approval is taking longer than expected.
Similarly, Red Bank, N.J.-based OceanFirst Financial Corp.'s acquisition of Salisbury, Md.-based Partners Bancorp has been pending for over 300 days.
Executives in both deals say they are stuck in regulatory purgatory.
Some smaller bank deals face delays
CBTX Chairman, President and CEO Robert Franklin said the approval process has been opaque as the Fed is not communicating with the companies enough.
"Our understanding is that we are in line," Franklin said during the company's second-quarter earnings call. "We just don't know where we are in line, and there are some 20 to 25 deals pending right now before the Fed. So it's very frustrating to us, very frustrating to our employees and folks who try to get this deal done because we're poised, ready to hit the button, but we are waiting on the Fed."
In an interview with S&P Global Market Intelligence, OceanFirst Chairman and CEO Christopher Maher said the company does not have a timeline for when the Partners deal will close. The companies originally expected the deal, which was announced in November 2021, to close in the second quarter, but they rescinded that guidance in March.
"We're working with our regulator, providing information as needed, and we're being patient and understanding to be respectful of the process," Maher said. "We don't have a timeline."
Another deal feeling the pressure of extended closing timelines is New York Community Bancorp Inc.'s pending acquisition of Troy, Mich.-based Flagstar Bancorp Inc. While a significantly larger deal than the CBTX or OceanFirst mergers, it has been pending for more than 490 days, also well above the 168 day median for deals resulting in an institution with between $10 billion and $100 billion in assets announced since Jan. 1, 2020.
M&A 'bottleneck'
The complaints from executives regarding the Fed approval process are not uncommon, Raymond James Head of Financial Services John Roddy said in an interview.
"It doesn't seem like there's a lot of back and forth regarding questions or whatnot," Roddy said. "We're just kind of sitting waiting for the Fed to move or not."
Ultimately, however, whether the Fed communicates with banks is not as important as whether or not they approve a deal, said Daniel Tsai, a business and law professor with banking expertise at Ryerson University.
"The banks are doing whatever they can," Tsai said. "They're trying to cooperate as much as they can, but the federal government is still the bottleneck."
Large bank deals take the brunt of regulatory scrutiny
While some smaller deals are facing delays, increased regulatory scrutiny from the Fed under the Biden administration has mostly impacted larger deals due to antitrust concerns as well as the increased credit exposure for retail banks with the largest client bases, Roddy said.
The Biden administration has been "bullish" with its antitrust activity, Tsai said, citing the Federal Trade Commission's regulatory and antitrust approach to big tech under the administration. Therefore, it makes sense that financial regulators would extend the same scrutiny to bank mergers to ensure they allow for competition, Tsai said.
Industry experts believe regulators are mostly zeroing in on deals resulting in institutions with more than $100 billion in assets.
There are currently three pending deals involving U.S. banks that would result in an institution with more than $100 billion in assets: U.S. Bancorp's acquisition of MUFG Union Bank NA, Bank of Montreal's acquisition of Bank of the West and Toronto-Dominion Bank's announced acquisition of First Horizon Corp.
Of those three pending deals, two have been pending beyond the median of 198 days for deals of that size announced since Jan. 1, 2020. Furthermore, all three are pending longer than the median of 145 days for all bank deals announced since Jan. 1, 2020, according to S&P Global Market Intelligence data.
One investment banker believes the Fed could potentially strike down one of the three largest pending bank deals in order to prove a point.
"Those could certainly take quite a while to get approved from a regulatory perspective and perhaps one of those deals or a couple of those deals, just because they might want to prove a point, one of them is likely to not get approved, potentially," Matthew Resch, managing director and co-head of M&A and capital markets with PNC Financial Institutions Advisory Group, said in an interview.
"We think that large bank M&A should likely be tabled for the time being unless and until that regulatory tone shifts," Resch added.
However, both TD and BMO recently maintained their original closing timelines that they guided to when they announced their respective deals, indicating they do not expect regulatory delays.
