Fed approvals 'bode well' for US bank deals stuck in backlog

As the end of the year draws near, 19 deals involving U.S. bank targets are still pending as of Dec. 21, with hopes of closing before the ball drops on Dec. 31.

A new administration with a tougher stance on M&A brought more regulatory scrutiny to bank deals in 2021, causing a handful of large U.S. bank deals to push back their expected closing dates. The Federal Reserve on Dec. 17 cleared some of its plate with the approval of three deals, but a few banks with expectations of closing their transactions by year-end are still stuck in the backlog.

Both Old National Bancorp and M&T Bank Corp. are only waiting on Fed approval to meet their anticipated year-end close for their respective transactions, but John Gorman, partner at Luse Gorman PC, said it is unlikely that the agency will hand down any more approvals in 2021.

"It's New Year's Eve week. I'd be surprised if you saw approvals between now and the 31st," Gorman said in an interview. "Anything could happen, but the government tends to slow down pretty significantly at this time of year."

While the Fed's sign-off might not come through by year-end, banks involved in pending transactions should not be worried about securing the agency's sign-off after the recent string of approvals, Gorman said.

On Dec. 17, the Fed approved First Citizens BancShares Inc. proposed acquisition of CIT Group Inc., WSFS Financial Corp.'s proposed acquisition of Bryn Mawr Bank Corp. and Webster Financial Corp.'s proposed acquisition of Sterling Bancorp, which were announced in October 2020, March 2021 and April 2021, respectively.

"[The Fed is] being extra cautious and making sure every single comment is addressed and the like," Gorman said. "But the approvals bode well for the pending deals."

B. Riley Securities analyst Steve Moss wrote in a Dec. 20 note that the approvals suggest "a potential regulatory thaw."

Old National announced its $2.47 billion merger of equals with First Midwest Bancorp Inc. on June 1 and has maintained its estimated timeline projecting a close by year-end.

"As we have previously announced, we already have received [Office of the Comptroller of the Currency] approval as well as overwhelming approval from both Old National's and First Midwest's shareholders. We know of no reason why we would not receive regulatory approval of the merger by the Federal Reserve," a spokesperson for Old National wrote in a statement to S&P Global Market Intelligence.

M&T's announced acquisition of People's United Financial Inc. is the longest pending U.S. bank deal targeting a Dec. 31 close. The pending deal, announced Feb. 22, is also the largest pending transaction expected to close by year-end, with a deal value of $7.60 billion at announcement.

At an industry conference on Sept. 15, Chairman and CEO Rene Jones said the company is "on track" for its goal of closing in fourth quarter.

But over one month later, on the company's third-quarter earnings call Oct. 20, CFO Darren King said the estimated timeline for conversion in the first quarter of 2022 may be pushed back depending on the timing of approval.

"But it's obviously our objective to complete that system integration and conversion as quickly as practical once we have our approval and we complete the legal close," King said.

About two weeks later at an industry conference Nov. 4, Jones said the pending approval is related to any problems regarding M&T.

"I think there just seems to be a pause in deals being approved through the system. If I'm encouraged by something, I'm encouraged by the fact that people continue to announce deals."

M&T Bank declined to comment further beyond recent public commentary.

Janney Montgomery Scott analyst Christopher Marinac believes that M&T's pending People's United buy could secure Fed approval soon, calling it a "visible" transaction with "a shot to get approved" by year-end.

"There's something magical about year-end where the Fed wants to clear their deck of deals and move on to the next year."