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CECL pricing concerns will not change People's United Financial's M&A strategy

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CECL pricing concerns will not change People's United Financial's M&A strategy

Despite industry concerns that the new current expected credit loss standard will impact mergers due to "double-count" issues, People's United Financial Inc. executives said CECL will not change the bank's M&A strategy.

During its third-quarter earnings conference call, CFO R. David Rosato said the bank's loan loss reserves could increase by 15% to 25%, or about $40 million to $60 million, after implementing CECL on Jan. 1, 2020. The increase is driven primarily by the bank's longer duration retail portfolio but is partially offset by its shorter duration commercial portfolio. This estimate is based on current economic conditions and results at the end of the third quarter, he said.

While Rosato noted that the new accounting standard is "harder for all of us," he said CECL will not change the acquisitive bank's M&A strategy. "A new accounting regime will change the recorded deal metrics in the short-term, but it's not going to change that strategy," he said.

People's United Financial has been an active acquirer, completing nine acquisitions since 2015 and currently has a pending acquisition of United Financial Bancorp Inc., expected to close in the fourth quarter. The bank is "very thoughtful" of the impact accounting for CECL may have on its acquisition of United Financial Bancorp, Rosato said.

Aside from CECL, the bank is paying a lot of attention to the declining interest rate environment when looking at future M&A pricing, said CEO John Barnes.