Bank mergers and acquisitions (M&A) were rife in the first half of 2021, as mergers and acquisitions in the sector rebounded after a slowdown in 2020 due to the coronavirus pandemic. And although mergers and acquisitions this year do not exceed activity in 2018 and 2019 in terms of number of transactions, transactions were larger than in previous years when you consider the amount of assets already sold over the years. first six months. Let’s take a look at the most important trades of the first half of this year and see if they were good moves or not.
1. M&T acquires People’s United
In February, M&T Bank (NYSE: MTB), based in Buffalo, New York, purchased People’s United Financial (NASDAQ: PBCT), based in Bridgeport, Connecticut, for $ 7.6 billion to create an approximately $ 200 billion asset bank in the northeast. The arrangement will be immediately accretive to M & T’s tangible book value (TBV) (equity less intangible assets and goodwill) at closing, which means that it will immediately increase M & T’s TBV. The deal is also expected to increase M & T’s earnings per share (EPS) by 10-12% in 2023, meaning M & T’s profits with People’s United will be 10-12% higher than it is expected to be on one. autonomous base in 2023.
The deal seems like a good move because it doesn’t dilute M&T shareholders, while creating a very dense footprint around Buffalo, Boston and Washington, DC, where almost everything is within a seven-hour drive. This should lead to a lot of savings and cross-selling opportunities.
2. NYCB acquires Flagstar
New York Community Bancorp (NYSE: NYCB) reached in Michigan to acquire Flagstar Bancorp (NYSE: FBC) for $ 2.6 billion, creating a bank with approximately $ 87 billion in assets. The acquisition will give NYCB a presence in New York, New Jersey, Ohio, Florida, Arizona, Michigan, Indiana, Wisconsin, Ohio, and a small presence in California. NYCB CEO Thomas Cangemi and analysts felt the merger was necessary as the bank seeks to move from a savings model with primarily fixed rate loans and higher cost sources of finance to the model. most commonly seen commercial banking today.
The acquisition was successful on several fronts by not diluting TBV, maintaining NYCB’s high dividend yield, and moving towards NYCB’s goal of transforming its loan and funding mix. But NYCB still has a lot of work to do on its transition, so investors may still want to see more work before they get behind the bank, which has struggled to raise its stock price for some time now. But I think it was a good start for NYCB, especially since the bank doesn’t have a strong valuation, which can make it more difficult to find financially attractive acquisitions.
3. Webster and Sterling merger of equals
Bankers call it a merger of equals (MOE) when two institutions, usually of the same size in terms of assets, merge with the intention of creating a new bank that plans to continue with much of each institution and their different activity area. In this deal, the $ 33 billion Webster Financial (NYSE: WBS) Connecticut-based is partnered with approximately $ 30 billion in assets Sterling Bancorp (NYSE: STL) based in New York to create a bank of assets of approximately $ 64 billion. Webster is the surviving entity and brand.
More banks are turning to EOMs as they try to scale up their scale by spreading a larger revenue stream over a smaller expense base to increase profits and create more capacity to invest in technology. and to compete with the biggest players. The combination of Webster and Sterling certainly looks compelling on paper, and both banks have unique competitive advantages. Webster operates a National Health Savings Account (HSA) business that helps generate a very inexpensive and persistent deposit base, while Sterling manages some specialized loan lines and deploys Bank as a Service (BaaS ). The larger balance sheet will also allow the combined bank to extend larger loans.
But MOEs are also more complex and more difficult to analyze because this is such a big change for existing banks, and Webster and Sterling were already very successful banks. So while I think this deal has great potential, progress on all EOMs needs to be carefully monitored.
4. Old National and the Midwest’s premier MOE
Assets of nearly $ 24 billion Former national bank (NASDAQ: ONB) announced he would join the $ 21 billion Midwestern Bancorp (NASDAQ: FMBI) in another MOE that would create a bank of approximately $ 45 billion assets in the Midwest. Old National, the technical buyer of the deal that will also be the surviving entity and brand, will buy First Midwest in a $ 2.5 billion deal. The deal will dilute Old National’s TBV by more than 8% at closing and take more than three years to recover. It’s pretty dilutive and the other big MOEs were a lot less dilutive, so I’d really like to see how things go before I jump into this deal.
5. BancorpSouth and Cadence MEO
In a third MOE, BancorpSouth (NYSE: BXS) announced its partnership with Cadence Bancorporation (NYSE: CADE) to create a bank of approximately $ 44 billion assets in the South with a presence in Texas, Georgia, Mississippi and Alabama. The deal is a little different from the others as BancorpSouth will be the surviving legal entity and the buyer, but the banks will unite under the Cadence Bank brand with a slightly different logo. The board of directors of the combined bank will also increase to 20 members.
Although Cadence has had some credit issues in the past, this deal looks strong as BancorpSouth is able to enter the attractive Texas banking market without diluting its TBV. BancorpSouth has also taken an extremely conservative gross credit rating on Cadence’s loan portfolio, so I think management is thinking cautiously about Cadence’s past, although it will certainly be important to closely monitor credit quality as it unfolds. as the case progresses.
6. Citizen agency agreement with HSBC
Smaller than other transactions but still significant, assets of $ 187 billion Citizens Financial Group (NYSE: CFG) Rhode Island-based announced the purchase of 80 branches of the U.S. banking division of HSBC (NYSE: HSBC). Citizens obtains 66 branches in the New York area, nine in the Mid-Atlantic and in the Washington, DC area, and five in Southeast Florida. The deal includes $ 9 billion in cheap deposits and $ 2.2 billion in loans, mostly residential mortgages.
The deal looks promising as it gives citizens more cash to use when loan growth returns, while lowering the cost of bank deposits. With 66 New York City branches, Citizens is also filling a significant gap in its geographic footprint. Finally, the deal gives Citizens plenty of online-only clients that might be a perfect fit for the national bank of digital consumers it created, called Citizens Access.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.