Bankers bemoan long regulatory scrutiny of bank deals
NEW YORK (Reuters) - At an industry conference in October, top financial services lawyer Rodgin Cohen complained that U.S. regulators were now taking six to nine months to approve bank deals - a painfully long time that he said was putting the brakes on transactions.
While many bankers and lawyers in the audience at the SNL Banking M&A Symposium in New York nodded in agreement, one regulator raised his hand to protest.
Michael Sexton, deputy associate director of the division of banking supervision and regulation at the U.S. Federal Reserve, pointed out that at least half of the deals reviewed this year were approved in less than two months.
A Fed spokeswoman later said that for the first three quarters of 2013, the agency's average approval time for mergers and acquisitions was 54 days.
"They were talking about averages and I was talking about individual transactions," Cohen, senior chairman at law firm Sullivan & Cromwell LLP, said in a recent interview. "I am seeing more transactions take an extraordinary amount of time."
Contrary to the regulator's protest and data to back the assertion, bankers and lawyers said a perception that the regulatory process had become an extremely difficult hurdle to clear for bank M&A has taken hold in the industry. They also said it would likely give buyers and sellers even more pause next year.
Last week, that perception was reinforced when M&T Bank Corp's (MTB.N) 2012 deal to buy Hudson City Bancorp (HCBK.O) for $3.7 billion was delayed for a second time because of regulatory scrutiny - this time by a year. The deal, one of the largest U.S. bank deals of the last several years has been held up as regulators demanded better anti-money laundering controls.
"What this stands for is that if a problem occurs after an announcement of a deal, it can delay or block the merger altogether," Cohen said.
M&T declined to comment and a Hudson City spokeswoman said no one was available for comment. The Fed also declined to comment further on the issue.
Increased scrutiny is only to be expected after the financial services industry's excesses ahead of the 2007-09 financial crisis and the deepest U.S. recession since the Great Depression. But bankers argue that the pendulum has swung too far, and it is hurting more than it should.
Traditionally, financial institutions groups have been one of the biggest money-spinners for banks. But the fee pie for FIG - as it is commonly referred to in banking circles - has withered in the aftermath of the crisis.
This year, financial services deals accounted for a mere 5 percent of total U.S. deal value, according to Thomson Reuters data. Ten years ago, they made up more than 27 percent. At the same time, data from investment bank Freeman & Co shows, banker fees from U.S. financial services transactions fell to $800 million in 2013, nearly half of their peak of $1.5 billion just before the financial crisis.
Bankers said factors such as increased compliance costs, record low interest rates, improving credit quality and a weak economy would normally lead to many more deals among the roughly 6,900 U.S. banks. But the prospect of having to go through the regulatory process was holding many CEOs back.
"There is no one that wants to do a bank deal in the U.S.," said a financial services banker. "No one wants to get M&T-ed."
Regulators are holding up even smaller, plain-vanilla bank deals, even though they are kept informed about transactions well before they are announced, bankers and lawyers said.
For example, Grand Rapids, Michigan-based Mercantile Bank Corp's (MBWM.O) planned $152 million acquisition of Firstbank Corp (FBMI.O) of Alma, Michigan, announced in August, was initially scheduled to close by the end of this year.
But in November, the two banks said the closing would be delayed because the Fed was reviewing a protest filed about Mercantile's mortgage practices. Now the banks have said they hope to close the deal by the end of 2014's first quarter.
West Virginia-based United Bankshares Inc's (UBSI.O) $491 million acquisition of Arlington-based Virginia Commerce Bancorp VCBI.O, which was announced in January, failed to close by its original November 30 target due to delays in receiving the Fed's nod.
The Fed approved the deal on December 13 and the deal is expected to close by the end of January.
"Clearly, the regulators are sending a message that even banks that want to do small deals need to be ready for increased scrutiny," a financial services banker said. "As a result a lot of banks are saying, 'Maybe we don't do this at all.'"
(Reporting by Jessica Toonkel)
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