Bank Mergers Get Faster Under Trump

Bank mergers are getting speedier under President Trump, with federal regulators changing policies that had deterred deals after the financial crisis.

That stance could potentially help fuel more consolidation, though it has also raised concerns that regulators aren’t scrutinizing mergers closely enough.

Last week, BB&T Corp. and SunTrust Banks Inc. announced plans for a $28.2 billion all-stock deal that, if completed, would be the biggest bank merger since the crisis.

The number of bank mergers approved hasn’t changed significantly in the past two years. But the process for getting a deal across the finish line has gotten quicker and community groups appear to have less input.

Banks say lengthy reviews by agencies including the Federal Reserve and Office of the Comptroller of the Currency can create hurdles for mergers that involve stock transactions. If a review takes too long, market movements risk making the deal less beneficial for one of the parties.

The median time the Fed takes to approve or reject a bank merger receiving opposition from community groups — common in large deals — dropped to 3.8 months in the first half of 2018, from 5.6 months in the first half of 2017 and 7.0 months for all of 2015, according to a Fed report. At the OCC, the average time for handling all mergers dropped to 1.9 months in 2018, from 2.6 months in 2016, the agency said.

Synovus Financial Corp., for example, received Fed approval to acquire Florida-based FCB Financial Holdings Inc. in December, about four months after announcing the deal, which received some public pushback.

“We were very pleased with the efficiency of the regulatory approval process,” Synovus Chief Executive Kessel Stelling said on the Georgia bank’s January earnings call.

Critics of the approval process worry that some mergers could decrease competition and diminish the number of branches available to consumers in rural areas. The Fed’s “anemic scrutiny of applications for mergers and acquisitions raises concerns that [it] may oversee a wave of bank consolidation to the detriment of consumers and the financial system,” Sen. Elizabeth Warren (D., Mass.) said in a letter to Fed Chairman Jerome Powell last week.

“We’ve received the letter and plan to respond,” a Fed spokesman said.

The Fed reviews mergers involving bank holding companies, while the OCC gets involved if it is the primary regulator of one of the banks. Their reviews run concurrently.

Both regulators have shortened their review periods in a couple of ways, including by streamlining some internal steps.

The OCC also has changed the way it considers community input. Negative responses from community groups now are less likely to halt or slow down an application, agency officials say.

Previously, community-group objections about a bank deal could bog down the review as the OCC evaluated and resolved them, a process that could take months.

Now, the OCC is instructing examiners to investigate some of the claims separately, rather than addressing them within the merger-approval process.

“We require a certain level of detail and specificity in comments,” Comptroller of the Currency Joseph Otting said in a written statement. “The changes ensure that concerns are validated by exam staff who are best positioned to review [their] merits.” He added the changes don’t limit community groups’ “ability to voice legitimate and substantiated concerns.”

Before becoming comptroller, Mr. Otting was chief executive of OneWest Bank, which faced opposition from community groups when it was looking to do a deal in 2014. Mr. Otting has said he has strong views on the merger process because of this, citing concerns that community groups “pole vault in and hold [bankers] hostage.”

Community groups, which have long used the merger-review process to press banks to lend more in underserved communities, worry the changes could weaken this bargaining chip.

“As banks grow and they hold more market share, they should produce more of a public benefit,” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition, a fair-lending advocacy group. “A way of ensuring that accountability is to have the public involved in the oversight of what they’re doing.”

Banks complain the process forces them to meet community groups’ demands or risk a deal’s demise. Some financial institutions have opened negotiations with those groups directly to garner their support through deals called community-benefit agreements.

As regulators have shifted their attitude toward community input, banks have grown less likely to strike such agreements, community groups say.

The OCC has also signaled that certain punishments, such as enforcement actions or bad supervisory ratings, wouldn’t automatically preclude banks from getting a deal approved.

For instance, banks that have been flagged for not lending enough in poor neighborhoods or punished for insufficient anti-money-laundering controls could get approval to merge, if the OCC determines they have resolved the issue.

The OCC’s position now is, “Don’t say no simply because that’s what you’ve done in the past,” Stephen Lybarger, head of licensing at the OCC, said during a banking policy conference last November. “We look at the facts.”

The Fed and the OCC took four months to clear the merger of two Wisconsin banks, Associated Banc-Corp and Bank Mutual Corp., in January 2018.

At the time, Associated was subject to a 2015 Department of Housing and Urban Development enforcement action alleging it had disproportionately denied loan applications to minorities. Associated denied the alleged practices but settled for $200 million.

Regulators approved the merger even though Associated didn’t promise to significantly increase lending in poor and minority neighborhoods, a move criticized by community groups. Associated later decided to boost lending in future years after talking to the groups.
Source: Dow Jones