TD Bank Group's proposed acquisition of Memphis, Tenn.-based First Horizon Corp. is likely to face a tough evaluation from regulators over financial stability concerns but ultimately get approved, analysts said.
The banks signed a definitive agreement for an all-cash transaction valued at $13.4 billion, or $25.00 for each First Horizon common share, they announced Feb. 28. TD Bank Group consists of The Toronto-Dominion Bank and its subsidiaries.
Potential changes to bank merger guidance and recent regulatory trends portend more difficulty for banks seeking to merge. Financial institutions had already been looking for a break in a backlog of large deal approvals that lawyers and analysts attributed to factors like a July executive order by President Joe Biden calling for updated merger guidelines for banks and tougher scrutiny of deals.
"I think this is going to be a close case, and I could envision a scenario where either the [Office of the Comptroller of the Currency] or the [Federal Reserve] decides on financial stability grounds that they're not willing to approve this deal," Jeremy Kress, assistant professor of business law at the University of Michigan, said in an interview. "One of the challenges for prognosticating is that this deal is going to be processed in parallel with broader conversations, which the regulators are having, about their bank merger rules.
"I think this is the type of deal that is likely to attract much higher scrutiny than deals have in the past," Kress said.
But the deal should be approved under the current standards, according to John Gorman of law firm Luse Gorman.
"Assuming that they have a clean record from a regulatory standpoint, under the standards in effect today, I think it's a question of when, not if," Gorman said in an interview. "It might take some time to change standards."
Regulatory personnel
A deal of this size is unlikely to move until the Fed has a vice chair for supervision in place, Kress said.
Biden's nominee for that position, Sarah Bloom Raskin, faces opposition from Republicans, who did not attend the Senate Banking Committee vote that was scheduled, which resulted in a lack of a necessary quorum to potentially send her nomination to the Senate floor for a vote. The committee is expected to try again to vote next month.
However, Fed staff could still work on the deal, according to Thomas Vartanian, a former general counsel of the Federal Savings and Loan Insurance Corp. and the Federal Home Loan Bank Board in the Reagan administration.
"The Fed doesn't slow down business waiting for people to arrive because if you started that practice, you'd be waiting for somebody always," Vartanian said.
"There is nothing about the size or location of [these] banks … that would seem to present insurmountable hurdles," Vartanian said in a follow-up email.