Fed Approvals of M&A Proposals by Lenders Rises in 2015

By Jeff Bater

March 29 — Approvals of merger and acquisition (M&A) proposals by lenders rose by 8 percent in the second half of 2015, according to a Federal Reserve report that supports anecdotal evidence of rising deal activity.

The Fed, in its Semiannual Report on Banking Applications Activity, said the volume of approved M&A proposals increased to 143, compared with 133 approved in the second half of 2014.

The report showed that for all of 2015, 279 M&As were approved, up from 248 in 2014. There were 190 approved in 2013 and 226 in 2012. Furthermore, the number of withdrawn applications has been declining steadily. There were 21 withdrawals in 2015, compared to 43 in 2012, according to the data.

As a primary federal regulator, the Fed reviews applications submitted by bank holding companies (BHCs), state member banks, savings and loan holding companies (SLHCs), foreign banking organizations, and other entities and individuals for approval to undertake various transactions, including mergers and acquisitions, and to engage in new activities.

The regulator acts on proposals filed under several laws: the Bank Holding Company Act; the Bank Merger Act; the Change in Bank Control Act (CIBCA); the Federal Reserve Act; section 914 of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA); section 10 of the Home Owners’ Loan Act (HOLA); the International Banking Act; and other provisions of law.

The Fed reported that it reviewed 653 proposals in the second half of 2015; 603 of those were approved. While the number of proposals reviewed was down from 697 in the second half of 2014, the composition was consistent with prior periods, with the majority of proposals consisting of M&As, FIRREA notices, branch applications, and CIBCA notices.

Considerations for Review

When reviewing M&A proposals, the Fed considers a variety of factors, such as the applicant’s financial condition and its performance under anti-money-laundering compliance programs. Another consideration could be a review of ownership changes of the organization that would result from a merger.

“M&A proposals generally are more complex than other proposals because they typically require review of several organizations under multiple statutory factors,” the Fed said in its report.

The average number of days to approve an M&A proposal in the second half of 2015 was 79, while the median number was 41. Those numbers were greater than the average and median numbers of days taken to approve all proposals, which were 50 and 35 days, respectively, in the second half of 2015.

The Fed occasionally must deal with adverse comments from the public during the vetting process on a proposed merger. “Such proposals typically require additional time to allow the applicant the opportunity to respond to the comments and for the Federal Reserve to evaluate the comments,” the regulator said.

For instance, one particular merger request of late has encountered significant resistance — KeyCorp's proposal to buy First Niagara Bank. The governor of New York, Andrew Cuomo, has urged the Fed to reject a deal, saying a merger would reduce competition in the upstate region and push consumers toward payday loans and check cashing .

Mergers in 2015

Among the mergers approved in 2015 was BB&T's request to acquire National Penn Bancshares, which received the Fed's nod in December . In July, the Fed said it approved the bid by CIT Group Inc. to acquire IMB Holdco and, indirectly, its subsidiary OneWest Bank. Also that month, the Fed granted BB&T's request to buy Susquehanna Bancshares. M&T Bank Corp. got Fed permission in September to complete its three-year quest to buy Hudson City Bancorp.

During a webinar in January sponsored by Bloomberg BNA, an adviser to financial firms on mergers and acquisitions said industry conditions continue to signal that consolidation among small and midsize banks will continue in 2016 . Joseph Stangl, a principal in the investment banking group Sandler O’Neill & Partners, said the operating environment for banks has been challenging for several years, indicating that the larger banks are able to operate more efficiently than smaller banks. Stangl said buyers with excess capital and limited growth prospects are looking to acquisitions to drive shareholder value and hopefully future stock appreciation.

To contact the reporter on this story: Jeff Bater in Washington at jbater@bna.com

To contact the editor responsible for this story: Mike Ferullo at mferullo@bna.com

For More Information

The report is available at http://src.bna.com/dGr.