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Monday's Bank Stocks: Fifth Third's sizable deal leads to selloff

A large deal rocked the bank space Monday, May 21, only a week after another bank made similar waves.

Cincinnati-based Fifth Third Bancorp agreed to buy Chicago-based MB Financial Inc. for $4.7 billion. The deal will increase the pro forma bank's deposit market share but came with a full price tag and a long recovery period following the tangible book value dilution. Shares of Fifth Third Bancorp tanked 7.93% to $30.90 while MB Financial rocketed 12.90% to $49.28.

Fifth Third Bancorp executives defended the deal value of 270.7% of tangible book value for MB Financial by saying the combined bank would become a leader in the Chicago business lending space, serving middle-market borrowers in the metro area. The price was determined in part by a competitive bidding process, said MB Financial CEO Mitchell Feiger.

"There will be questions about the valuation of this firm. ... Some may describe the price as a full price," said Fifth Third CFO Tayfun Tuzun. "Let me indicate that we paid the price that the franchise deserves to get paid. This is not a project. This is a very well-run company."

The deal is the largest in the last 12 months and comes just a week after the now second-largest deal was announced. About a week ago, Cadence Bancorp. announced it would acquire State Bank Financial Corp. for $1.4 billion.

Monday also saw another deal in the bank space, as Hanmi Financial Corp. announced it would acquire Houston-based SWNB Bancorp Inc. for about $76.7 million. The pro forma company will have approximately $5.7 billion in assets, $4.7 billion in loans and $4.7 billion in deposits, upon closing of the transaction. Hanmi expects the acquisition to be accretive to earnings per share in 2019 and to generate a modest dilution to tangible book value of 1.5%, with an earnback period of approximately three years. Hanmi improved 2.79% to $29.45.

More broadly, markets rallied following an easing of tensions between the United States and China over tariffs. Reports that the two countries are trying to finalize an agreement that would increase the exports of American goods and potentially avert a trade war heartened investors and sent stocks higher over the course of the day. The Dow Jones Industrial Average ended the day up 1.21% to 25,013.29, the S&P 500 rose 0.74% to 2,733.01 and the Nasdaq Composite Index grew 0.54% to 7,394.04.

In big banks, JPMorgan Chase & Co. improved 0.92% to $112.15, Bank of America Corp. added 0.96% to $30.55, Citigroup Inc. expanded 0.67% to $70.43 and Wells Fargo & Co. rose 1.56% to $54.54.

First Foundation Inc. jumped 2.19% to $19.16, Preferred Bank grew 2.56% to $64.52 and ConnectOne Bancorp Inc. improved 2.63% to $27.30. FCB Financial Holdings Inc. dipped 0.74% to $60.30 and New York Community Bancorp Inc. dropped 0.25% to $12.00.

S&P Dow Jones Indices and S&P Global Market Intelligence are owned by S&P Global Inc.

Market prices and index values are current as of the time of publication and are subject to change.