During the height of the bank turmoil in the spring, regulators let Toronto-Dominion Bank know that its acquisition of First Horizon Corp. would face longer delays.
According to a document obtained by S&P Global Market Intelligence through a Freedom of Information Act request, a Philadelphia Federal Reserve supervisor emailed TD's lawyer March 13 asking the company to "prepare and submit a request for suspension of the processing" of the transaction.
Regulators generally request a suspension-of-processing letter when they do not have the necessary information to make a timely decision on an application, industry experts told Market Intelligence.
Regulators commonly request this when they have issues they cannot resolve within their deadlines, said William Isaac, chairman of Secura/Isaac Group LLC and former chair of the Federal Deposit Insurance Corp. If an agency is still seeking information needed for consideration and is approaching the statutory deadline for making a decision on an application, they can either ask the banks for an extension or deny the application, Isaac said.
"I don't think the regulator was ready to deny the application, but they also were not ready to approve it," Isaac said in an interview. "There's a statutory clock that's ticking, and they called the banks and said, 'What do you want us to do? Do you want us to deny it, or are you going to withdraw it?'"
Still, such a request is "highly unusual," according to Todd Baker, senior fellow at the Richard Paul Richman Center for Business, Law, and Public Policy at Columbia University.
The request "suggests that unresolved policy issues within the Fed made approval of the transaction uncertain at best," Baker added.
Outstanding information from another agency
An earlier email from a Federal Reserve Board lawyer suggested the agency was waiting for information from another agency, the FOIA request revealed.
The Fed could not decide on the application "at least until board staff receives additional information from another agency that is necessary for the board to make a decision on the proposal," according to a Jan. 17 email to TD's legal counsel. The email did not say from which agency the Fed was waiting for additional information.
The deal was later terminated May 4, marking the largest US bank termination ever. Months later, TD disclosed that it was facing a US Justice Department probe regarding its Bank Secrecy Act (BSA) and anti-money laundering (AML) practices, confirming a prior report by The Wall Street Journal on May 8 that regulators were concerned about TD's AML practices.
The deal was originally announced Feb. 28, 2022, but it faced delays as regulatory approval remained outstanding. The deal also faced public opposition, largely related to TD's overdraft practices.
In May, the Fed was likely still not ready to approve the deal and so the banks decided to withdraw the application, Isaac estimated.
On a call following the termination announcement, First Horizon Chairman, President and CEO D. Bryan Jordan said TD "could not provide assurance of regulatory approval in 2023 or 2024." The banks began working on the mutual termination shortly before the May 4 announcement, signing the termination agreement late May 3, Jordan said on the call.
Where are they now?
First Horizon was worried about the potential impact of deposit outflows after the termination because the demise of Silicon Valley Bank showcased "the amount of money that can leave your bank very quickly," CFO Hope Dmuchowski said June 14.
"With the TD deal falling through, we had those discussions of what could a one-day run in our bank look like. How do we position for that?" Dmuchowski said. "Every bank out there is constantly thinking about what could a one- or two-day run look like."
First Horizon saw deposit growth after the termination, with total deposits sitting at $65.43 billion at June 30 compared to $61.44 billion at March 31, largely thanks to an aggressive deposit campaign.
The company held an investor day June 6 where it reintroduced guidance and outlined its independent priorities, which center around focusing inward on initiatives such as building capital and retaining employees and customers.
The First Horizon deal was set to greatly bolster TD's US operations and presence. Since the deal was nixed, the company is pivoting back to organic growth in the US, executives said on a May 25 call to discuss the company's earnings.
TD is also focused on its ongoing DOJ probe regarding its BSA/AML practices.
"Any time we have any sort of inquiry on any of our regulators, we take those items very seriously. And we employ whatever resources are required to be able to deal with that issue," group head of US retail Leovigildo Salom said during a presentation Sept. 13. "We believe that's a manageable item and in the fullness of time will resolve."