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As bank M&A closing time drops, some CRA concerns rise

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As bank M&A closing time drops, some CRA concerns rise

A more efficient regulatory review process has helped reduce closing time for bank M&A transactions, but community groups are worried that efforts to speed up approvals will undercut the goals of a law aimed at extending credit to lower-income individuals.

In 2018, the average number of days from announcement to completion for bank deals dropped to 133, from 156 in 2017, for transactions in which buyers have more than $1 billion in assets. The number of days dropped to 118 from 139 for deals in which buyers had less than $1 billion in assets, according to S&P Global Market Intelligence data as of Dec. 18.

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While different variables can impact closing time, deal advisers and officials from regulators said agencies have been making efforts to review transactions more quickly.

Speedier approvals can beget more deals because the prospect of a long review process could serve as a deterrent to transactions. But community groups are concerned that a regulatory push to streamline deal reviews will limit the public's ability to have an impact when protesting transactions.

Oftentimes the protests raise concerns about banks adhering to the Community Reinvestment Act, which requires institutions to meet community credit needs, including those of low- and moderate-income citizens. The National Community Reinvestment Coalition, or NCRC, helps local community groups advocate for fairness in banking, and its CEO, Jesse Van Tol, says some depository deals are being approved quickly even though they face protests about CRA or other concerns.

"Regulators seem to be taking community comments less seriously," Van Tol said in an interview.

Some regulators have said they made changes to how they handle reviews of deals facing protests, and that has sped up the approval time for those merger applications. In a September report, the Federal Reserve Board noted that "process changes" put in place during the first half of 2018 led to the average review time falling to 117 days, a 38.4% year-over-year drop, for approved M&A proposals that received adverse public comments.

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Michael Waldron, a senior special counsel in the Federal Reserve Board's legal division, said better interagency communication and a goal of increasing efficiency led to the reduction. He added that the agency has not diminished its view of public comments.

"We still take them very seriously and look at them very carefully," he said during an industry conference in November. "So the change is more about our approach."

The Office of the Comptroller of the Currency also made changes to its public comments policy in an effort to act more quickly when reviewing applications. Since around November 2017, the only public comments that impact a licensing decision are those that cite factual information about wrongdoing, according to a source familiar with the OCC's acquisition approval process. Before then, even broad public comments could delay the approval process, the person said.

The OCC views a long approval process as a safety-and-soundness issue because it could put the companies involved in the deal at risk. For instance, targets could lose personnel or customers, and those types of defections could push buyers to walk away from the deal.

In an effort to avoid delays, the agency came to the determination that it was better to have supervisory offices investigate vague issues raised in public comments rather then try to probe those concerns during the acquisition review process, OCC Deputy Comptroller of Licensing Stephen Lybarger said at the November 2018 industry conference. The supervisory offices are better "equipped with boots on the ground to really investigate the allegation," Lybarger said.

But looking into fewer public comments during the acquisition review concerns community groups. One fear is that the change will lead to reduced scrutiny of CRA during the merger approval process, and that would take the "teeth out" of the primary mechanism for enforcing the law, Building Alabama Reinvestment Executive Director Bob Dickerson said in an interview.

Dickerson believes CRA exams have not been effective in expanding credit to low- and moderate-income individuals because while many of those communities are still underserved, the large majority of banks receive CRA ratings of satisfactory or better during those reviews. Only one of 185 banks received a CRA rating below satisfactory during evaluations that took place in the first three quarters of 2018, according to data on the OCC's website as of Dec. 18.

Historically, banks only faced CRA pushback during the M&A approval process, NCRC's Van Tol said. "There are a lot of bank CEOs who care about CRA because of its potential to disrupt their merger," he said.

Under President Barack Obama's administration, regulators incentivized banks to reach agreements with community groups that protested deals or risk delaying approval for six months or longer, according to a Dec. 9, 2018, memo from Wachtell Lipton Rosen & Katz lawyers. In a number of transactions during that time, the OCC required acquirers to seek public input and develop a CRA plan — or a community benefit agreement — for the combined entity, the Wachtell lawyers said.

But of late, regulators have quickly approved even large deals that face adverse comments, the lawyers said. Community organizations raised protests in two of 2018's largest announced bank deals, Cadence Bancorp.'s pending $1.37 billion deal for State Bank Financial Corp. and Synovus Financial Corp.'s pending $2.87 billion deal for FCB Financial Holdings Inc. Regulators from the Federal Reserve approved the deals after the buyers detailed their CRA records, and regulators did not require the banks to execute community benefit agreements, according to the Wachtell memo.

"The speed at which the Federal Reserve approved the Cadence and Synovus transactions, notwithstanding community group protests, combined with a newfound willingness to dismiss nonsubstantive protests altogether, is a sea change from just a few years ago," the Wachtell lawyers said.