COVID-19 Forces Banks to Reconsider Previously Announced Deals
COVID-19 Forces Banks to Reconsider Previously Announced Deals
COVID-19 has impacted no less that four mergers in the banking sector. In addition, a few others have reportedly been restructured with lower prices or postponed.
Notably, the deal between Texas Capital and Independent was far and away the banking industry’s largest transaction to be cancelled because of COVID-19. However, the crisis also halted the proposed mergers of Nicolet Bankshares and Commerce Financial Holdings in Wisconsin; Suncoast Credit Union and Apollo Bank Miami; and Beach Community Bank and First City Bank of Florida, both in the Sunshine State.
While the companies gave various reasons why the deals were called off, all are linked to the coronavirus pandemic’s impact on the economy.
Observers believe that additional deals will likely fail, with concerns about COVID-19 thwarting new mergers. As a result, it may be some time before any of these affected banks find new partners.
Texas Capital – Independent Bank Group Merger Sunk by COVID-19
The $3.3 billion pending merger between the $36 billion-asset Texas Capital in Dallas and the $16 billion-asset Independent Bank Group in McKinney, Texas has recently been shut down. Texas Capital saw a first-quarter loss that reflected a large loan-loss provision to cover two energy loans and borrowers’ potential problems in the pandemic.“Due to the unprecedented impact of the COVID-19 pandemic, both companies’ boards … believe it is in the best interests of our employees, clients and all of our shareholders to focus on managing our business during this time,” Larry Helm, Texas Capital’s chairman, said in a press release announcing the termination.
Nicolet Bankshares – Commerce Financial Holdings
Insiders say that a depressed stock price from COVID-19 doomed the $3.7 billion-asset Nicolet’s pending acquisition of the $729 million-asset Commerce. Since the announcement of the deal in February, Nicolet’s shares have dropped by more than 30%. To that end, Nicolet invoked a term in the merger agreement that allowed the bank to end the deal if its shares traded below $62 at the time set for closing. Nicolet’s shares fell beneath that point in March, and with the continued economic uncertainty, the bank decided it was unlikely the stock would improve before a scheduled closing midsummer.
Nicolet agreed to pay termination fees to Commerce that entailed a sum of $500,000 and surrendered the 4,000 shares of Commerce stock it owns to compensate for walking away.
Shareholder and Regulatory Approval Cited for Some Delays and Terminations
Banks say that the COVID-19 pandemic has also made it more difficult to obtain shareholder and regulatory approval.For example, First BanCorp in San Juan, Puerto Rico attributed its slow deal progress to regulatory delays. The bank said that its proposed buyout of Santander’s lending operations in Puerto Rico would most likely fail to close on time. Elsewhere, the $5 billion-asset Northfield Bancorp in New Jersey and the $378 million-asset VSB Bancorp in Staten Island, N.Y. delayed their M&A meetings because of complications from the pandemic. Likewise, the $11 billion-asset Suncoast and the $747 million-asset Apollo, when announcing a decision to terminate their merger, noted that the regulatory approval for their transaction was delayed by the COVID-19 pandemic.“Yes, people are working but the pace of progress is different,” Aurelio Alemán-Bermudez, First BanCorp’s president and CEO, said during the $12.6 billion-asset company’s recent earnings call.
COVID-19 Makes Banks Rework Deals
There are several bank deals that are being reworked, reexamining pricing to address the economic downturn and continued uncertainty. The deal value for Bank of Southern California’s pending purchase of CalWest Bancorp was lowered by 19%, to $25.9 million last month.
Also, the value of Three Rivers Federal Credit Union’s deal for West End Bank in Indiana was dropped by about 5% to $41.3 million earlier in May, according to S&P Global Market Intelligence. Similarly, New Bancorp in South Bend, Indiana agreed to lower the price of its sale to Teachers Credit Union by 9%, to $19.4 million.
Some Deals Still on Track
But not every deal is being delayed by COVID-19.First Horizon National in Memphis—with its $47 billion in assets—announced in April that it was on track to wrap up its $3.9 billion merger with the $32 billion-asset Iberiabank in Lafayette, Louisiana by the end of June.